PROBLEMS  AND  EXERCISES 
IN  ECONOMICS 


EDITION 


M    H.  GORDON  HAYES 

Professor  of  Economics,  Ohio  State  University 


NEW  YORK 

HENRY  HOLT  AND  COMPANY 
1922 


PROBLEMS   AND  EXERCISES 
IN  ECONOMICS 

REVISED  EDITION 


BY 


H.  GORDON  HAYES 

Professor  of  Economics,  Ohio  State  University 


NEW  YORK 

HENRY  HOLT  AND  COMPANY 
1922 


COPYRIGHT,  1916,  1922, 

BY 

HENRY  HOLT  AND  COMPANY 


PRINTED  IN  U.  S.  of  A. 

PRESS   OF   THE    LENT    &    GRAFF    CO.,   N.    Y. 


PREFACE  TO  THE  FIRST  EDITION 

This  book  of  problems  and  exercises,  originally 
prepared  for  the  use  of  students  in  the  University 
of  Minnesota,  has  been  thoroughly  revised  and  en- 
larged for  the  present  edition.  It  is  designed  to 
serve  teachers  and  students  in  the  Principles  of  Eco- 
nomics by  furnishing  illustrative  problems  and  ex- 
ercises in  convenient  form.  It  is  believed  that  the 
use  of  such  problems  will  tend  to  accomplish  the 
following  results : 

(1)  Illustrate  the  principles  of  the  science  and  the 
subject-matter  of  the  text. 

(2)  Form  a  basis  for  class  discussions,  and  for 
discussions  by  students  outside  of  class. 

(3)  Promote  close  thinking  on  the  part  of  the 
student. 

(4)  Encourage  students  to  read  more  critically. 

(5)  Stimulate  interest  in  the  subject. 

The  problem  method  succeeds  best  when  certain 
problems  are  assigned  for  written  exercises,  the 
papers  read  and  returned  to  the  student,  with  errors 
indicated,  to  be  corrected  and  returned  to  the  in- 
structor. For  large  classes  this  plan  can  be  best 
followed  by  having  special  assistants  to  read  the 

iii 


iv  PREFACE 

papers.  Eat  prepa*a:cio&  of  the  papers  by  the 
student;  etepL  if  •  .some,  o\*  all  of  them,  may  not  be 
givefi  specific  criticism,  is  eminently  worth  while,  as 
is  the  study  of  problems  without  reducing  the  an- 
swers to  writing.  A  few  suggestions  with  regard  to 
the  method  of  attacking  problems,  together  with  a 
scheme  for  the  preparing  and  marking  of  papers,  are 
included  at  the  end  of  the  book.  It  is  suggested  that 
teachers  use  care  in  assigning  problems,  that  those 
which  are  too  difficult  for  the  student  or  those  for 
which  help  is  not  contained  in  the  text  or  assigned 
reading  shall  be  omitted. 

The  outline  of  the  book,  and  the  order  of  arrange- 
ment of  the  problems  follow,  in  general,  Professor 
Seager's  Principles  of  Economics,  which  it  is  intended 
to  accompany.  As  the  problems  and  exercises  re- 
late to  the  general  principles  of  economics  rather  than 
to  the  particular  subject-matter  of  the  text,  and  as 
many  of  them  contain  within  themselves  most  of  the 
data  needed  for  their  solution,  the  book  should  prove 
practically  as  well  suited  to  accompany  any  other 
text-book. 

The  author  wishes  to  acknowledge  a  very  special 
indebtedness  to  Professor  F.  M.  Taylor,  of  the  Uni- 
versity of  Michigan,  first,  for  the  general  idea  of  the 
problem  method  which  is  embodied  in  this  book; 
secondly,  for  the  training,  while  student  and  teacher 
under  his  direction,  in  his  method  of  constructing 
problems  and  adapting  them  to  effective  use;  and 
thirdly,  for  a  large  number  of  problems  either  copied 


PREFACE  v 

or  adapted  from  his  Principles  of  Economic?  and 
from  his  lists  of  examifcatioh  questions,  f 01  which  he 
gave  generous  permission.  The  author  is  also  under 
special  obligation  to  Dr.  Carl  E.  Parry,  of  the  Ohio 
State  University,  for  valuable  suggestions  and  criti- 
cisms. In  addition,  he  wishes  to  express  appreciation 
for  permission  to  use  a  few  problems  prepared  by 
Dr.  Parry,  and  a  few  from  the  Outlines  of  Economics 
published  by  the  University  of  Chicago  Press.  Such 
problems,  together  with  those  from  Professor  Taylor, 
are  indicated  by  the  appropriate  initial,  without 
parenthesis  if  copied,  with  parenthesis  if  adapted. 

H.  G.   H. 

MINNEAPOLIS,  1916. 


PREFACE  TO  THE  SECOND  EDITION 

The  list  of  problems  published  six  years  ago  has 
been  considerably  altered  for  the  present  edition. 
While  some  of  the  problems  of  the  first  edition  are 
included  in  this  edition  without  alteration,  for  the 
most  part  substitutions  have  been  made  for  the  orig- 
inal problems  or  they  have  been  rewritten. 


H.  G.  H. 


COLUMBUS,  OHIO, 
April,  1922. 


PROBLEMS  AND  EXERCISES  IN 
ECONOMICS 

I. 
INTRODUCTION. 

1.  a.  Mention  several  wants  which  you  have  which 
are  dependent  upon  economic  goods  for  their  satis- 
faction. 

6.  Mention  wants  which  you  have  which  are  in  no 
way  dependent  upon  economic  goods  for  their  satis- 
faction. 

2.  Define  economics.    Amplify  the  definition  show- 
ing what  the  science  includes  and  what  it  excludes. 

3.  a.  Are  the  questions  suggested  by  the  follow- 
ing terms  economic :  prison  reform,  Sunday  baseball, 
six-year  presidential  term,  intercollegiate  athletics, 
eight-hour  day,  submarine  warfare? 

fe.  Do  those  which  are  not  economic  involve  eco- 
nomic considerations?  Explain. 

4.  List  five  important  questions  of  the  day.  Desig- 

1 


INTRODUCTION 


nate  thbs'g  'which  afe'  Vssiefotjally  economic  and  those 
whiclx  ii 


5.  List  five  questions  of  local  importance  in  your 
city  or  town.    Which  of  these  are  economic?    Which 
involve  economic  matters  without  being  essentially 
economic  ? 

6.  Name  some  of  the  laws  of  your  state  that  have 
economic  consequences.     Can  you  mention  any  im- 
portant state  law  that  is  without  economic  effect? 

7.  Is  the  main  purpose  which  you  hope  to  accom- 
plish in  life  economic?     If  not,  is  it  in  any  degree 
economic  ? 

8.  How  is  family  life  dependent  upon  economic 
conditions  ? 

9.  Do  you  believe  that  social  prestige  is  largely 
dependent  upon  economic  possession?     If  so,  is  the 
fact  regrettable?     Discuss. 

10.  Suggest  two  subjects  of  interest  to  economics 
students  to-day  that  were  not  considered  fifty  years 
ago.    Account  for  their  development. 

11.  Give  an  historic  illustration  of  the  fact  that 
economic  strength  is  vital  to  the  life  of  a  people. 


II. 

RISE  OF  MODERN  INDUSTRY  IN 
ENGLAND 

12.  a.  State  the  chief  characteristics  of  the  man- 
orial system. 

b.  What  were  the  advantages  of  that  system  as 
compared  with  our  present  industrial  system?  The 
disadvantages  ? 

13.  What  was   the  main   purpose   of   the  gilds? 
When  did  the  gild  system  flourish?    Account  for  the 
displacement   of   the   manorial    system   by   the   gild 
system  and  for  the  subsequent  failure  of  the  latter. 

14.  "Statutes  of  Laborers — passed  in  1351,  and 
subsequent  years — seem  to  have  had  little  practical 
effect." — SEAGER,  p.  7.     Account  for  these  laws  and 
for  their  failure. 

15.  a.  What  was  the  mercantile  system?    Give  the 
approximate  dates  for  the  beginning  and  end  of  this 
system. 

b.  Account  for  the  rise  of  this  system?  For  its 
decline? 


4  RISE  OF  MODERN  INDUSTRY 

c.  Is  our  present  economic  system  more  or  less 
mercantilistic  now  than  it  was  fifty  years  ago?    Ex- 
plain. 

d.  Were  the  American  colonists  at  all  affected  by 
the  mercantile  policy  of  England?     Explain. 

16.  a.  When  did   the   industrial  revolution  take 
place? 

6.  Discuss  the  effect  of  this  revolution  upon  life 
and  industry. 

17.  a.  What  do  the  words  laissez-faire  mean? 
ft.  What  is  meant  by  a  laissez-faire  policy? 

18.  "The  policy  of  laissez-faire  was  an  inevitable 
product  of  the  time  in  which  it  originated." 

a.  Give  the  supporting  argument. 

6.  Does  this  help  to  account  for  the  abandonment 
of  the  policy  of  mercantilism? 

19.  Give  reasons  for  preferring  to  have  lived  be- 
fore the  advent  of  the  factory  system ;  for  preferring 
to  live  under  the  factory  system. 

20.  Did  the  factory  system  lead  to  a  modification 
of  the  laissez-faire  policy?     Explain. 

21.  Is  the  tendency  to-day  toward  a  greater  or  a 


RISE  OF  MODERN  INDUSTRY  5 

lesser  application  of  the  laissez-faire  policy?  Cite 
evidence  to  support  your  answer.  Account  for  this 
tendency. 


III. 

THE  INDUSTRIAL  EXPANSION  OF  THE 
UNITED  STATES. 

22.  "The  industrial  opportunities  that  prevailed 
in  the  United  States  during  the  last  two  centuries 
made  the   laissez-faire  principle   inevitable."      Give 
supporting  argument. 

23.  "Very  early  the  North  and  South  began  to 
quarrel   about  protection  to  manufacturing  indus- 
tries." 

a.  State  explicitly  just  why  there  was  a  conflict 
of  interest  in  regard  to  protection. 

b.  Does  this  conflict  of  interest  still  exist?     If  so, 
has  it  at  all  abated?     Cite  evidence  in  support  of 
your  answers. 

24.  State  the  chief  economic  advantage  that  has 
resulted  from  the  development  of  our  railroads ;  the 
political  advantage ;  the  general  social  advantage. 

25.  Account  for  the  fact  that  in  Nevada,  Missis- 
sippi and  Vermont  the  population  decreased  during 
the  decade  ending  1920,  while  for  the  country  as  a 
whole  the  population  increased  14?. 9  per  cent. 

6 


INDUSTRIAL  EXPANSION  OF  U.  S.          7 

26.  Account  for  the  fact  that  the  increase  in  our 
population  per  decade  was  approximately  one-third 
from  1790  to  1860;  one-fourth  from  1860  to  1890; 
one-fifth  from  1890  to  1910;  and  one-seventh  from 
1910  to  1920. 

27.  Cite  evidence  to  support  "the  growing  con- 
viction that  in  protecting  liberty  and  property  the 
government  of  the  United  States  has  neglected  the 
interests  of  equality." 

28.  "From  1900  to   1915   the  number  of  wage- 
earners  in  establishments  producing  iron  and  steel 
increased  25  per  cent  and  the  value  of  the  products 
increased  56  per  cent."     What  is  the  significance  of 
this  statement  ?    Would  the  increase  in  the  volume  of 
manufactured  goods  as  compared  with  the  increase 
in  the  number  of  laborers  in  manufacturing  estab- 
lishments be  more  vital  than  this  comparison?     Ex- 
plain. 

29.  "In  1850  we  produced  1  ton  of  cereals  per 
person.     In  1900,  with  a  smaller  proportion  of  our 
population  engaged  in  agriculture,  we  produced  1% 
tons  of  cereals  per  person." — SMITH,  Industrial  and 
Commercial  Geography,  p.  556.     How  do  you  ac- 
count for  this  increase  in  product  per  person? 

30.  "Relatively    our    exports    of    manufactured 
products  are  increasing  at  the  expense  of  our  ex- 


8          INDUSTRIAL  EXPANSION  OF  U.  S. 

ports  of  agricultural  products."  Account  for  this 
fact.  Argue  that  we  may  expect  a  still  greater  rela- 
tive increase  in  the  export  of  manufactured  goods. 

31.  "The  per  capita  foreign  trade  of  the  Falk- 
land Island  is  about  $600  per  person,  while  that  of 
the  United  States  is  less  than  $40  per  capita." — 
SMITH,  Ibid.,  p.  683.     Why  is  there  such  a  marked 
difference  in  the  foreign  trade  of  these  two  communi- 
ties?    Can   you  judge  the  relative  economic  well- 
being  of  the  inhabitants  of  these  communities  from 
these  facts?     Explain. 

32.  The  Annalist,  January   17,   1916,  estimated 
our  foreign  trade  for  1915  at  $5,350,000,000,  and 
our  home  trade  for  the  same  year  at  $507,000,000,- 
000.    It  was  also  estimated  that  "all  of  our  foreign 
commerce  since  the  Civil  War  made  but  one-fifth  of 
the  home  trade   in   the   year   1915."      Why  is   the 
volume  of  our  foreign  trade  so  small  relative  to  our 
domestic  trade? 

33.  "The  citizens  of  the  United  States  have  in- 
vested less  than  one  per  cent  of  their  wealth  abroad 
while  the  citizens  of  England  have  made  foreign  in- 
vestments amounting  to  a  much  larger  percentage  of 
their  wealth."     Account  for  this  difference.       May 
our   foreign   investments   be   expected   to   increase? 
Explain. 


IV. 

ECONOMIC  CONCEPTS. 

A.  ECONOMIC  ACTIVITY. 

34.  Have  you  ever  engaged  in  economic  activity? 
If  so,  what  motive,  or  motives,  prompted  you  to 
do  so? 

35.  Make  a  list  of  the  motives  to  business  activity 
that  perhaps  characterize  (a)  a  student  canvasser; 
(fe)  a  college  graduate  entering  a  profession;  (c)  a 
manufacturer;    (d)    a    railroad    magnate;    (e)    an 
actor;  (/)  an  unskilled  street  laborer. 

36.  What  motives  to  business  activity  are  most 
worthy;  least  worthy? 

37.  Explain  the  meaning  of  the  expression  "busi- 
ness is  business."     Should  "business"  be  "business"? 

B.  ECONOMIC  GOODS  AND  THEIR  VALUE. 

38.  An  economic  good  is  one  that  has  value,  that 
is,  commands  a  price.     An  economic  good  is  one  in 

9 


10  ECONOMIC  CONCEPTS 

the  use  of  which  we  economize.    An  economic  good  is 
one  that  has  both  utility  and  scarcity. 

a.  Are  these  definitions  in  agreement  or  do  they 
conflict? 

b.  Which  of  them  is  the  more  fundamental?  Why? 

c.  Construct  similar  definitions  for  a  free  good. 

39.  When  was  the  land  in  your  neighborhood  a 
free  good?     When  did  it  become  an  economic  good? 

40.  "A  thing  may  have  value  and  not  be  useful: 
e.g.,  an  old  stone  prized  by  a  collector."     Point  out 
the  error. — T 

41.  "A  horse  is  no  wealth  to  us  if  we  cannot  ride, 
nor  a  picture  if  we  cannot  see,  nor  can  any  noble 
thing  be  wealth  except  to  a  noble  person." — RUSKIN, 
Munera  Pulveris,  p.  25.     Contrast  the  meaning  of 
the  word  "wealth"  in  this  statement  with  the  mean- 
ing given  to  it  by  economists. 

42.  Are  the  following  economic  goods :  sunshine, 
a  good  disposition,  fresh  air,  water  in  Lake  Superior, 
the   skill   of   a  surgeon,   the  services   of   a   surgeon, 
whisky,  old  postage  stamps? 

43.  Account  for  the  difference  between  the  earn- 
ings (wages)   of  a  school  teacher  and  a  celebrated 


ECONOMIC  CONCEPTS  11 

musician;  a  coal  miner  and  a  mining  engineer;  an 
agricultural  laborer  and  a  movie  star. 

44.  The  pelt  of  a  chinchilla — a  piece  of  fur  about 
the  size  of  a  man's  hand — sells  for  $70.     Account 
for  this  fact. 

C.  PRODUCTION  AND  CONSUMPTION. 

45.  Adam  Smith  referred  to  household  servants 
as  "unproductive  laborers."     Show  that  servants  are 
productive.      What   do   they   produce?      Give   some 
justification  for  Adam  Smith's  terminology. 

46.  "The    only    real    producers    are    the    miners, 
lumbermen,  and  farmers ;  for  they  are  the  only  ones 
who  add  something  to  the  total  wealth."    Show  that 
there  is  no  essential  difference  in  the  contribution  of 
the  farmer,  the  miller,  the  baker,  the  grocer,  and  the 
delivery  man. — T. 

47.  "Let  us  do  away  with  all  these  non-producing 
parasitic  middlemen." 

a.  Name  three  or  four  classes  of  middlemen. 

6.  Argue  that  competition  tends  to  eliminate  all 
middlemen  who  are  not  rendering  productive  services. 

48.  Is  the  teacher  a  producer?     What  does  he 
produce?     Answer  the  same  question  in  regard  to  a 


12  ECONOMIC  CONCEPTS 

cook;  a  laborer  in  a  chair  factory;  a  chair  manu- 
facturer. 

49.  Are  the  majority  of  University  students  pro- 
ducers or  parasites?     Explain. 

50.  If  one  is  not  a  producer,  in  what  two  ways  can 
he  get  economic  goods  by  which  to  live? 

51.  An  automobile  may  be  both  a  producer's  good 
and  a  consumer's  good.     Illustrate. 

52.  "There  is  not  a  real  antithesis  between  pro- 
duction  and   consumption.      Production   goods    are 
merely  consumption  goods  a  little  less  ripe."    "Yes, 
but  it  is  of  the  greatest  importance  to  the  individual 
and  to  society  that  the  difference  between  these  two 
classes  of  goods  should  be  clearly  recognized."    Dis- 
cuss the  validity  of  the  second  quotation. 

53.  "The  car  company  was  not  responsible  for 
the  accident,  but  I  got  $800  damages  for  my  client. 
I  kept  $400." — A  lawyer.     Was  this  lawyer's  busi- 
ness activity  productive  or  predatory?     Discuss. 

54.  Mention  several  laws  that  prohibit  predatory 
production. 

55.  Suggest  forms  of  predatory  production,  now 
allowed,  that  should  be  prohibited  by  law. 


ECONOMIC  CONCEPTS  13 

D.  ECONOMIC  LAW. 

56.  "The  wage  of  labor  tends  to  approximate  the 
standard  of  living." 

"Every  man  should  be  paid  a  living  wage." 

"Employers  shall  not  pay  laborers  less  than  $5.00 
per  day." 

a.  What  kind  of  law,  or  principle,  does  each  of 
these  statements  exemplify? 

6.  What  conflicts,  if  any,  exist,  or  may  exist,  be- 
tween these  laws? 

57.  "A  law,  limiting  the  rate  of  interest  to  six  per 
cent  in  western  Canada,  would  be  opposed  to  eco- 
nomic law  and  would  thus  be  doomed  to  fail."    Ex- 
plain what  is  meant. 

58.  Formulate  an  economic  principle  that  is  ar- 
rived at  by  the  deductive  or  a  priori  method;  one 
that  is  arrived  at  by  the  inductive,  or  a  posteriori 
method.    Explain  each. 


V. 

CONSUMPTION  OF  WEALTH. 

59.  Illustrate  the  law  of  diminishing  utility  from 
your  own  experience. 

60.  "Eat,  drink,  and  be  merry,  for  to-morrow  we 
die."    Is  this  statement  more  characteristic  of  primi- 
tive   or    of    civilized   people?      Of    educated    or    of 
ignorant  people?     It  is  more  characteristic  of  cer- 
tain nationalities  than  it  is  of  other  nationalities? 
Discuss. 

61.  Why  does  the  clerk  say  to  the  hesitating  cus- 
tomers, "We  are  selling  lots  of  these  now"?     Are 
our  economic  wants  largely  determined  by  the  atti- 
tude of  our  fellows?     Discuss. 

62.  Let  the  following  schedule  represent  the  de- 
mand in  a  given  market : 

DEMAND  PRICE 

1,000  bushels  of  potatoes  would  be  taken  at  55  cents  per  bushel 
1  100         "        "         "  "        "      "        "  54      "      "        '* 

l',200         "        "         "  "        "     "        "  53      "       "        " 

1,300         "        "         "  "        "      "        "  52      "      "        " 

1 400         "        "         "  "        **     "        "  51      w      "        " 


CONSUMPTION  OF  WEALTH  15 

a.  Draw  a  graph  to  show  the  facts  indicated  in 
this  schedule. 

b.  Alter  the  schedule  to  show  a  much  greater  de- 
gree of  elasticity  in  the  demand.     Alter  the  graph 
to  correspond  to  the  new  schedule. 

63.  Formerly,  an  expert  cabinet  maker  could  be 
found  in  almost  every  locality.    Why  is  this  not  true 
to-day?    Discuss. 

64.  Illustrate  uneconomical  consumption. 

65.  Distinguish  between  economic  necessaries  and 
luxuries. 

66.  Show  that  expenditure  for  luxuries  cannot  be 
justified    on    the    ground    that    such    expenditures 
"make  work." 

67.  Distinguish    between    saving    and    spending. 
What  is  the  advisable  division  of  income  between  sav- 
ing and  spending?     Discuss. 

68.  The  servant  class  in   the  Philippine  Islands 
greatly  resented  the  displacement  of  the  Spanish  by 
the  Americans  since  the  latter  did  not  employ  nearly 
so  many  servants. 

a.  Was  this  a  hardship  to  servants? 
fe.  Argue  that  the  Filipino  laborers  as  a  whole  did 
not  lose  by  this  economy  of  the  Americans. 


16  CONSUMPTION  OF  WEALTH 

£..  Show  that  this  economy  in  servants  may  be 
expected  to  have  benefited  the  whole  number  of  Fili- 
pino laborers. 


VI. 
PRICE. 

69.  a.  Why  do  we  have  prices  set  on  goods  and 
services?    Is  this  really  necessary? 

6.  Why  do  certain  goods  and  services  demand  very 
high  prices  while  other  goods  and  services  command 
very  low  prices,  or  no  price  at  all? 

70.  Should  you  expect  that  an  increase  of  one  cent 
per  pound  in  the  price  of  sugar  would  lead  to  any 
reduction  in  the  amount  of  sugar  that  is  used?     On 
the  basis  of  your  answer,  what  is  the  relation  be- 
tween the  price  of  sugar  and  the  marginal  utility 
of  sugar?    Explain. 

71.  Should   you    expect   that    certain   buyers    of 
Ford  automobiles  are  marginal  buyers,  that  is,  per- 
sons who  would  not  purchase  Fords  at  any  higher 
price?     If   as  many  Fords  as   are  now  being  sold 
could  be  sold  at  a  higher  price,  what  is  the  relation 
between  the  price  of  Fords  and  the  marginal  utility 
of  Fords  to  buyers?     Discuss. 

72.  Explain  in  terms  of  the  text  why  a  person  will 
buy  a  seat  at  the  theater  for  $1.10  when  there  are 

17 


18  PRICE 

more  desirable  seats  which  he  might  purchase  for 
$1.50  or  $2.00.  Does  the  price  set  for  the  seats  in 
each  section  tend  to  correspond  closely  to  the  utility 
of  seats  to  some  buyers  of  those  seats  ?  To  all  buy- 
ers? Discuss. 

73.  "The  marginal  utility  of   a   given   stock   of 
goods  is  the  highest  price  at  which  all  of  the  units 
of  that  stock  can  be  sold."     Is  this  statement  in 
agreement  with  your  text  ?    Explain. 

74.  "All  the  units  of  a  good  have  the  importance 
— take  the  value — of  the  least  wanted  unit." 

a.  Why  is  this  true?    Illustrate. 

6.  Has  this  statement  any  relation  to  the  mar- 
ginal utility  theory  of  value?  Explain. 

c.  May  the  buyer  with  the  least  want,  as  meas- 
ured by  price  offer,  have  the  keenest  desire? 

75.  Explain    the    so-called    paradoxes    of   value. 
They  are  as  follows : 

a.  A  more  useful  article,  like  bread,  is  less  valu- 
able than  a  less  useful  article,  like  diamonds. 

6.  A  most  useful  article,  like  air,  may  have  no 
value  at  all. 

c.  A  part  is  sometimes  more  valuable  than  the 
whole;  for  by  destroying  a  part,  the  remainder  is 
often  worth  more  than  the  whole. 


PRICE  19 

76.  Show   that   the   prices   paid  for   the  various 
kinds  of  service  involved  in  building  a  house  are  com- 
plementary to  each  other.     Are  cases  involving  the 
principle  of  complementary  price  determination  of 
frequent,  or  of  rare  occurrence?    Discuss. 

77.  "Those  who  speak  of  diamonds  having  no  use- 
value,  and  of  food  having  infinite  use-value,  must  be 
drawing  their  ideas,  not  from  the  life  of  men  but 
from  the  life  of  cattle." — SMART,  Theory  of  Value, 
p.  22.    Explain.    Why  is  the  price  of  bread  low  and 
the  price  of  diamonds  high? 

78.  "The  production  and  sale  of  most  goods  is 
going  on  continuously." 

a.  Is  this  true  of  articles  of  clothing,  food,  fuel, 
and  furniture?  Is  it  true  of  the  equipment  and  raw 
materials  of  manufacture?  Of  dwelling  houses?  Of 
land? 

&,  li  the  market  supply  is  made  up  of  constantly 
changing  units,  produced  and  offered  for  sale  by 
competitors,  what  relation  will  tend  to  exist  between 
price  and  cost?  Why? 

c.  Does  the  length  of  time  that  must  elapse  before 
tllis  relation  is  brought  about  differ  in  the  case  of 
different  goods?     Does  it  differ  greatly?     Why  or 
why  not?     Give  several  illustrations. 

d.  What  determines  price  in  the  case  of  the  goods 


20  PRICE 

the  supply  of  which  cannot  be  increased?  Explain 
and  illustrate. 

79.  The   prices    of   automobiles   fell   for   several 
years  before  the  war,  then  increased,  and  since  the 
spring  of  1921  have  gradually  fallen.     How  do  you 
account  for  these  price  changes?     How  much  lower 
will  these  prices  go? 

80.  A  shoe  firm  in  Minneapolis  posted  the  follow- 
ing "special  sale"  schedule  on  its  walls: 

LADIES'  SHOES  MEN'S  SHOES 

$5.00  values  for  $3.75  $5.00  values  for  $4.00 

$4.00  values  for  $3.00  $4.00  values  for  $3.20 

$3.00  values  for  $2.25  $3.00  values  for  $2.40 

Upon  being  asked  the  reason  for  the  difference  in  the 
two  price  schedules,  the  manager  said:  "There  is 
more  difference  between  the  wholesale  and  retail  prices 
of  ladies'  shoes  than  of  men's  shoes."  Account  for 
the  fact  stated  in  the  quotation. 

81.  a.  If  wooden  chairs  can  be  produced  at  a  cost 
of  thirty  cents  per  chair,  including  necessary  profit, 
regardless  of  the  quantity  produced,  what  should 
you  expect  to  be  the  price  of  such  a  chair?     Why 
neither  more  nor  less? 

6.  If  the  manufacturers  should  be  taxed  ten  cents 
for  each  chair  produced,  what  effect  would  this  tend 
to  have  on  the  price  of  such  chairs? — (T.) 


PRICE  21 

82.  Name  several  articles  that  you  should  expect 
to  be  produced  at  a  uniform  cost  per  unit  regardless 
of  the  amount  produced. 

83.  Name  several  articles  the  production  of  which 
you  should  expect  to  entail  greater  cost  per  unit  as 
the  amount  produced  over  a  given  period  of  time  is 
increased.     Explain. 

84.  Name  several  articles  the  production  of  which 
you  should  expect  to  entail  less  cost  per  unit  as  the 
amount  produced  over  a  given  period  of  time  is  in- 
creased.   Explain. 

85.  a.  Construe!  three*  supply  and  demand  sched- 
ules, for,  respectively,  a  good  of  which  a  varying 
number  of  units  can  be  produced  at  a  uniform  cost 
per  unit ;  a  good  of  which  the  cost  per  unit  increases 
as  the  amount  produced  over  a  given  period  of  time 
increases ;  and  a  good  of  which  the  cost  per  unit  de- 
creases as  the  volume  of  output  increases.     Use  the 
following  model : 

SUPPLY  PRICE  DEMAND 

units    will    be    pro-  per  unit ;  at  which  units 

"*  duced    for    sale    at  "  "'price  buyers  would  take*" 


b.  Draw  graphs  to  show  the  facts  indicated  by 
each  of  these  supply  and  demand  schedules. 


22  PRICE 

c.  In  which  of  the  schedules  could  the  words  "but 
no  more"  be  added  after  the  word  "units"  in  the 
supply  column?  In  which  one  could  the  words  "but 
no  less"  be  added  after  the  word  "units"  in  the  sup- 
ply column?  Discuss  the  point  involved. 

86.  Decreasing1  costs  per  unit  of  output  as  the 
volume  of  output  is  increased  may  be  due  either  to 
economies    effected,    on    account    of    an    increased 
volume   of   output,   in   the   various   stages    through 
which  an   article  passes  from  raw  material  to  fin- 
ished product,  or  to  economies  that  come  from  in- 
dividual plants  producing  on  a  larger  scale.     Illus- 
trate each  class  of  economies. 

87.  Assume  the  following  individual  supply  sched- 
ules for  three  producers  of  a  certain  good : 

SUPPLY  PRICE 

A                    B  C 

700                     800  500  25  cents 

1000  1000  800                       20     " 

1500  1200  1000                       15     " 

1700  1500  0                       10     " 

2000                        0  8     " 

0  5     « 

a.  If  buyers  will  take  2000  units  at  20  cents,  4500 
at  15  cents,  and  5000  at  10  cents,  how  many  units 
will  be  produced  and  sold  by  A?  By  B?  By  C? 
What  profit  will  A  make?  B?  C? 

&.  If  a  tax  be  levied  upon  excess  profits  how  should 


PRICE  23 

you  expect  it  to  affect  A?  B?  C?  Would  such  a 
tax  tend  to  change  the  selling  price  of  this  good? 
Explain. 

88.  If  a  tax  be  levied  upon  each  unit  of  a  good 
that  is  produced  under  competition  and  at  an  in- 
creasing  cost   per   unit    as    the   volume   of    output 
increases,  will  the  selling  price  be  affected?  Explain. 

89.  "We  may  expect  the  price  of  meat  to  steadily 
increase."     Why  so? 

90.  a.  With  a  fixed  supply  of  300,000,  what  price 
will  be  set  when  the  supply  is  controlled  by  compet- 
ing sellers  if  demand  is  as  in  (A)  ;  if  as  in  (B)  ? 

PRICE  DEMAND 

$4.00  (A)   175,000  (B)  20,000 

3.00  240,000  100,000 

2.00  260,000  300,000 

1.00  280,000  700,000 

.50  300,000  1,000,000 

b.  If  the  sellers  combine,  what  price  will  be  set 
with  demand  (A)  ;  with  demand  (B)  ? 

c.  Will  combination  prove  most  profitable  under 
demand  (A)  or  demand  (B)? 

d.  Formulate  a  general  principle  for  monopoly 
price  on  the  basis  of  the  conclusion  reached  in  c. 

e.  If  a  fifty-cent  tax  be  levied  upon  this  good,  what 
will  be  the  price  under  monopoly  in  (A)  ;  in  (B)  ? 


24  PRICE 

f.;  Formulate  a  general  principle  relating  to  the 
shifting  of  a  monopoly  tax  on  the  basis  of  the  con- 
clusion reached  in  e. 

91.  Change  part  a  of  the  above  problem  to  read — 
If  any  amount  can  be  produced  at  a  cost  of  fifty 
cents  per  unit — and  answer  above  questions. 

92.  Assume    the    following    supply    and    demand 
schedule  for  a  certain  grade  of  oil : 

SUPPLY  PRICE  DEMAND 

MIL.  GAL.  CENTS  MIL.  GAL. 

60  7                                100 

100  6                                150 

150  5                                200 

200  4                                300 

300-400  3                                400 

a.  Under  competition,  what  price  will  prevail? 

b.  Under  monopoly,  what  will  be  the  price? 

c.  What  dilemma  confronts  the  monopolist  when 
he  is  controlling  a  decreasing  cost  good?    Illustrate. 

d.  What  will  be  the  effect  upon  price  if  a  one-cent 
tax   should  be  levied   upon   the   amount  produced 
under  competition?    Under  monopoly? 

93.  a.  If  a  large  part  of  the  people  who  now  make 
beef  and  pork  a  part  of  their  diet  should  permanently 
discontinue  the  use  of  these  foods,  what  effect  would 
this  change  tend  to  have  on  the  price  of  bone  fer- 
tilizers?   Explain  fully. 


PRICE  25 

b.  This  change  in  the  price  of  bone  fertilizer,  by 
affecting  the  price  of  the  fertilizer  which  is  a  by- 
product of  the  fish  industry,  would  affect  the  price 
of  fish.    In  what  way? 

94.  Factories  often  operate  during  dull  seasons 
and  sell  their  products  at  prices  at  which  they  could 
not  afford  to  sell  over  a  long  period  of  time.    Explain 
fully  why  this  is  true. 

95.  If  the  demand  for  mutton  should  increase  per- 
manently what  would  tend  to  be  the  long  time  effect 
upon   the  price   of   cotton   clothing?      Develop   the 
argument  step  by  step. 

96.  If  a  certain  site  yields  $400  net  rent  per  year, 
and  is  expected  to  yield  this  amount  permanently, 
and   the  market  influences  have  fixed   the   rate  of 
capitalization  for  land  income  at  five  per  cent,  the 
price  of  the  site  will  be  $8,000. 

a.  What  is  the  computation  process  by  which  the 
price  is  thus  fixed  at  $8,000? 

6.  If  a  tax  of  $100  per  year  be  imposed  upon  this 
site,  what  will  the  net  income  from  the  site  then  be? 
The  price  of  the  site? 

c.  Will  the  landlord  not  raise  his  rent  to  $500  and 
force  the  tenant  to  pay  the  tax?    Explain  carefully. 

97.  "The  imposition  of  a  new  tax  on  a  piece  of 


26  PRICE 

land  is  equivalent  to  a  partial  confiscation  of  said 
land ;  the  removal  of  a  long-standing  tax  is  equivalent 
to  a  free  gift  to  the  owner  of  said  land."  Explain 
fully.— T. 

98.  Certain  reformers  urge  that  taxes  on  buildings 
be  decreased,  or  wholly  removed,  and  taxes  on  land 
be  correspondingly  increased.  What  effect  would 
this  tend  to  have  on : 

a.  The  rent  of  city  lots  ?    Explain. 

b.  The  selling  price  of  city  lots?    Explain. 

c.  The  rent  of  city  buildings?    Explain. 

d.  The  selling  price  of  city  buildings?     Explain. 


VII. 
PRODUCTION:  LAND. 

A.  WHAT  is  LAND? 

99.  a.  What  is  land? 

6.  Is  the  fertility  in  the  soil  part  of  the  land? 

c.  Should  fences  be  classed  as  land?    Tile  drains? 
Trees  in  a  young  orchard?    Trees  in  a  wood  lot? 

d.  Does  difficulty  of  making  distinctions  in  par- 
ticular cases  warrant  the  conclusion  that  such  dis- 
tinctions are  useless?     Illustrate. — (T.) 

100.  "The  supply  of  land  is  fixed."    "The  supply 
of  land  is  elastic.    Witness  the  great  increase  in  the 
supply  of  land  during  the  past  century."     Discuss 
the  point  at  issue. 

101.  What  are  the  chief  points  of  difference  be- 
tween land  and  other  goods?     These  differences  fur- 
nish the  basis  for  what  tax  proposal? 

B.  DIMINISHING  RETURNS. 

102.  Why  do  not  farmers  confine  their  work  to  one 

27 


28  PRODUCTION:     LAND 

TABLE  OF  COMBINING  PROPORTIONS* 


I 

II 

III 

IV 

V 

VI 

VII 

VIII 

IX 

t| 

s 

ta 

3 

«j 

tn 

w 

•M|° 

1 

P. 

3 
o 

£• 

o 

t- 

8 

f->  ci 

.2  3 

i-i^Q 

•g 

"3 

^J 

ta      2 

—  p« 

S) 

Si 

p«M 

s 

3 

o 

o 

p. 

few 

6 

I 

I 

Ijbffl 

<  0 

1.2 

0)  >•* 

|| 

ll 

1 

20 

2 

2 

t 

.1 

1 

1 

2 

20 

3 

6 

(i) 

4 

.3 

2 

4 

3 

20 

4 

16 

(2) 

10 

.8 

4 

10 

4 

20 

5 

35 

(4) 

19 

1.7 

7 

19 

5 

20 

6 

84 

(7) 

49 

4.2 

14 

49 

6 

20 

7 

126 

(14) 

42 

6.3 

18 

42 

7 

20 

8 

156 

(18) 

30 

7.8 

19.5 

80 

8 

20 

9 

179 

(19.5) 

23 

8.9 

19.8 

23 

9 

20 

10 

200 

(19.8) 

21 

10 

20 

21 

10 

20 

12 

236 

(40) 

36 

11.8 

19.7 

18 

11 

20 

14 

266 

(39) 

30 

13.3 

19 

15 

12 

20 

16 

290 

(38) 

24 

14.5 

18.1 

12 

13 

20 

18 

312 

(36) 

22 

15.6 

17.3 

11 

14 

20 

20 

330 

(34) 

18 

16.5 

16.5 

9 

15 

20 

22.2 

346 

(36) 

16 

17.3 

15.6 

7.2 

16 

20 

25 

362 

(43) 

16 

18.1 

14.5 

5.7 

17 

20 

28.5 

380 

(50) 

18 

19 

13.3 

5 

18 

20 

33.3 

393 

(63) 

13 

19.6 

11.8 

2.6 

19 

20 

40 

400 

(78) 

7 

20 

10 

1.1 

20 

20 

44.4 

398 

(44) 

19.9 

8.9 

21 

20 

50 

393 

(50) 

<8 

19.6 

7.8 

22 

20 

57.1 

360 

(56) 

v 

18 

6.3 

11 

23 

20 

66.6 

280 

(60) 

g 

14 

4.2 

24 

20 

80 

140 

(56) 

O 

7 

1.7 

§ 

25 

20 

100 

80 

(35) 

4 

.8 

jd  s 

26 

20 

133.3 

40 

(26) 

£H 

2 

.3 

<Qr 

27 

20 

200 

20 

(20) 

1 

.1 

f  This  table,  together  with  a  few  of  the  questions  based 
on  it,  is  taken  substantially,  with  some  adaptations,  from 
Taylor's  Principles  of  Economics,  ch.  IX. 


PRODUCTION:     LAND 


29 


acre  of  land?  Why  is  it  socially  important  to  in- 
crease the  available  stock  of  land  by  improvements 
such  as  drainage  and  irrigation  projects,  and  trans- 
portation facilities? 


1 

_ 

r- 

\    "l—i 

~^_  . 

]       !        *••  •••  >  

6 

r  . 

~h_         r  — 

TH- 

Z 

c 

"M 

\ 

c 

709/0     f2-     14     /«      to      20      tit      13           W              JJW                         40 

Msnbtr  of  3.J 

DIAGRAM  OF  ABOVE  TABLE 

Continuous  line — Rectangles  measure  actual  increase  in  output 

at  each  combination  (col.  vi). 
Broken  line — Rectangles  measure  increase  in  output  if  increase 

were  proportional  to  increase  in  B's  (col.  v). 

103.  The  foregoing  table  shows  the  possible  results 
from  taking  a  given  quantity  of  land  (A)  and  com- 


30  PRODUCTION:     LAND 

bining  with  it,  using  upon  it,  a  gradually  increasing 
number  of  days  of  labor  (B).  It  may,  of  course, 
also  be  used  to  represent  the  application  of  varying 
units  of  coal  to  a  furnace,  of  labor  to  a  factory,  or 
of  any  variable  fajtor  to  a  fixed  factor.  Note  par- 
ticularly the  second,  third,  and  fourth  columns  from 
which  the  other  columns  are  derived. 

a.  If  A's  represent  acres  of  land  and  B's  days  of 
labor,  what  product  will  result  from  applying  four 
days  of  labor  to  the  twenty  acres  of  land?  If  the 
days  of  labor  are  increased  one-fourth,  from  four 
to  five,  what  increase  in  output  will  result?  What 
would  have  been  the  increase  in  output  if  the  increase 
had  been  proportionally  equal  to  the  increase  in  the 
days  of  labor,  that  is,  if  the  output  had  increased 
one- fourth  ? 

6.  During  which  of  the  combinations  does  an  in- 
crease in  B's  lead  to  an  increase  in  output  that  ex- 
ceeds the  increase  in  output  that  would  have  resulted 
if  the  increase  in  output  had  been  proportionally 
equal  to  the  increase  in  B's? 

c.  During  which  of  the  combinations  does  an  in- 
crease in  B's  lead  to  an  increase  in  output  that  is  less 
than  the  increase  in  output  that  would  have  resulted 
if  the  increase  in  output  had  been  proportionally 
equal  to  the  increase  in  B's? 

d.  Column  VIII,  derived  from  columns  III   and 
IV,  shows  the  average  output  per  B  in  each  combina- 
tion.    During  which  of  the  combinations  does  the 


PRODUCTION:     LAND  31 

average    output   per   B    increase   if   more   B's    are 
added  ? 

e.  During  which  of  the  combinations  does  the 
average  output  per  B  decrease  if  more  B's  are  added? 

/.  During  which  of  the  combinations  does  the  out' 
put  per  A  increase  if  more  B's  are  added? 

g.  The  combinations  suggested  in  b  mark  the 
stage  of  increasing  returns.  Using  the  term  "chang- 
ing factor"  instead  of  "B,"  state  what  is  meant  by 
saying  that  an  industrial  unit — a  factory,  a  furnace, 
or  a  parcel  of  land — is  in  the  state  of  increasing 
returns. 

h.  The  combinations  suggested  in  c  mark  the  stage 
of  diminishing  returns.  What  is  meant  by  saying 
that  land  is  in  the  stage  of  diminishing  returns? 

i.  "The  stage  of  diminishing  returns  is  not  marked 
by  a  decrease  in  total  return ;  nor  is  the  beginning  of 
the  stage  of  diminishing  returns  necessarily  at  the 
point  where  return  per  addition  of  changing  factor 
becomes  less."  Show  that  this  is  true. 

j.  If  A's  were  free  and  B's  were  not,  which  com- 
bination would  you  use,  9  or  19?  If  B's  were  free 
and  A's  were  not?  If  neither  were  free,  within  what 
combinations  would  you  work?  Just  what  will  deter- 
mine the  combination  that  one  will  use? 

k.  Show  that  it  will  never  be  profitable  to  work  in 
the  stage  of  increasing  returns  if  it  may  be  avoided. 


32  PRODUCTION:     LAND 

I.  Column  IX  shows  the  amount  of  output  added 
by  each  additional  B.  If  you  were  working  at  the 
16th  combination,  what  could  you  afford  to  pay,  in 
terms  of  output,  for  another  B  ?  If  all  land  is  being 
farmed,  say,  in  the  llth  combination,  what  wage  will 
be  paid,  in  terms  of  output,  assuming  A's  to  be  acres 
and  B's  laborers?  Why  neither  more  nor  less? 

104.  "As  an  industrial  society,  we  should  seek  to 
work  just  at  the  beginning  of  the  stage  of  diminish- 
ing returns;  but  individual  landowners  will  find  it 
most  profitable  to  work  at  the  point  of  maximum 
output  if  wages  are  low  enough  to  warrant  it." 

a.  Prove  the  first  statement. 

6.  As  a  society,  how  can  we  keep  out  of  the  later 
combinations  ? 

c.  Prove  the  second  statement. 

d.  How  low  must  wages  measured  in  output  go  to 
warrant  the  land-owner  in  using  the  19th  combina- 
tion in  the  above  table?    What  rent  will  the  landlord 
enjoy  at  this  combination  assuming  that  there  are  no 
costs  other  than  labor  cost? 

e.  What  wage  will  warrant  the  landlord's  using 
the  llth  combination  but  not  the  12th?     How  much 
rent  will  be  received  at  the  llth  combination? 

f.  What  fractional  part  of  the  per  capita  product 
is  wages  at  the  llth  combination?     What  part  is 


PRODUCTION:     LAND  33 

rent?     Answer  similar  questions  for  the  17th  com- 
bination. 

105.  "When  one  gets  into  the  stage  of  decreasing 
returns  he  begins  to  lose  money."    Do  you  agree? 

106.  "The  law  of  diminishing  returns  presupposes 
no  technical  changes  in  method."     Show  the  neces- 
sity for  this  limitation. 

107.  "It  is  of  course  true  that  industry,  especially 
agricultural  industry,  is  subject  to  the  law  of  dimin- 
ishing  returns.      Nevertheless,   history    shows    very 
plainly  that,  as  population  has  increased  from  a  few 
millions  to  more  than  a  billion,  the  supplying  of  the 
economic  needs  of  society  has  become  not  more  dif- 
ficult but  much  easier."     Show  that  the  two  state- 
ments are  not  contradictory. 

108.  "If  it  were  not  for  the  law  of  diminishing  re- 
turns, every  farmer  could  get  rich  simply  by  doubling 
frequently  the  outlay  on  his  business."     This  state- 
ment would  not  be  made  by  a  person  who  knew  ex- 
actly what  is  meant  by  the  law  of  diminishing  re- 
turns.   Explain  why. — (T.) 

109.  "The  formation  of  boys'   corn  clubs  is   an 
excellent  thing.      Some  of  the  boys  who  belong  to 
these  clubs  have,  by  devoting  their  time  to  a  single 
acre,  raised  ppon  it  as  much  as  two  hundred  bushels 


34  PRODUCTION:     LAND 

of  corn.  This  sort  of  intensive  cultivation  shows 
the  possibilities  of  American  agriculture,  and  should 
be  encouraged." 

a.  Under  what  conditions  is  intensive  agriculture 
economical? 

6.  Is  America  in  position  to  practice  intensive 
agriculture? 

c<  What  fundamental  economic  law  is  overlooked 
in  the  above  question? — T. 


VIII. 
PRODUCTION:  LABOR. 

110.  Define  the  economic  term  labor. 

111.  What  do  you  understand  by  the  expression: 
"the  cost  of  product  expressed  in  human  terms"? 

112.  Is  any  labor  pleasant?     Is  a  large  degree  of 
it  pleasant?     What  kind  is  most  pleasant?     Least 
pleasant?     Is  the  pleasure  to  be  derived  from  work 
conditioned  upon  the  aptitude  of  the  worker  for  his 
particular  work?     If  the  worker  feels  that  his  work 
is  worth  while,  will  he  derive  more  pleasure  from  it 
than  if  he  regards  it  as  only  a  means  of  getting  an 
income  ? 

113.  "We  must  seek  to  make  labor  more  efficient." 
"We  must  strive  to  make  life  as  rich  as  possible. 
This  may  call  for  less  rather  than  for  more  work, — 
for  less,  rather  than  more,  high-speed  efficiency." 

a.  What  possible  difference  in  point  of  view  is  in- 
dicated by  these  statements? 

b.  With  which  point  of  view  are  you  most  in  sym- 
pathy? 

35 


36  PRODUCTION:     LABOR 

c.  May  the  two  statements  be  reconciled?  Ex- 
plain. 

114*.  "Specilization  is  necessary  to  a  high  degree 
of  efficiency." 

a.  Enumerate  the  many  advantages  of  having  each 
person  engage  at  some  one  task.  Are  there  any  dis- 
advantages in  such  a  procedure?  Explain. 

fe.  Show  that  the  degree  to  which  one  can  devote 
himself  to  some  one  occupation  depends  upon  the 
extent  of  the  market,  and  that  the  degree  to  which 
one  can  devote  himself  to  some  one  task  within  an 
industry  depends  upon  the  size  of  the  plant.  Does 
the  size  of  the  plant  depend  upon  the  extent  of  the 
market? 

c.  May  we  expect  more  or  less  specialization  in 
the  future  than  we  have  now?  Explain. 

115.  "The  steam  engine  theory  of  the  efficiency  of 
labor   maintains,    or   perhaps    implies    rather   than 
maintains,  that  the  vigor  of  the  laborer  is  in  propor- 
tion to  what  he  consumes." — TAUSSIG,  Principles  of 
Economics,  vol.  1,  p.  92. 

a.  Evaluate  this  theory. 

b.  So  far  as  it  is  true,  what  bearing  has  it  on  the 
minimum-wage  proposal?     Explain. 

116.  In  1870  we  had  about  500  high  schools  in  the 


PRODUCTION:     LABOR  37 

United  States;  in  1880  nearly  1000;  in  189C,  2400; 
and  in  1921,  13,951.  What  should  you  expect  to  be 
the  result  of  increased  attendance  at  high  school 
upon  the  economic  welfare  of  the  nation?  Explain. 

117.  Is  there  a  close  relationship  between  the  hon- 
esty of  a  people  and  their  economic  welfare?     Dis- 
cuss. 

118.  Discuss  the  effect  of  thrift  upon  economic 
welfare;  the  effect  of  sobriety. 

119.  How  does  an  increase  in  economic  welfare 
affect  the  volume  of  population?     Explain. 

120.  Does  compulsory  industrial  insurance  tend  to 
affect  the  efficiency  of  labor?    Explain. 

121.  "A  display  of  wealth  by  the  employer's  wife 
may  reasonably  be  expected  to  decrease  the  efficiency 
of  the  workmen." 

a.  Does  this  seem  reasonable?     Discuss. 

6.  Is  this  statement  at  all  indicative  of  a  general 
condition  that  tends  to  impair  the  efficiency  of 
Vage-workers"?  Of  other  employees? 


IX. 
PRODUCTION:  CAPITAL. 

122.  Does  labor  ever  produce  without  the  aid  of 
tools?    Give  illustrations. 

123.  "The  capitalistic,  or  tool,  method  is  a  round- 
about method." 

a.  Suggest  a  direct  method  of  catching  fish. 

6.  Suggest  a  roundabout  method. 

c.  Why  is  the  roundabout  method  more  efficient? 

124.  "A  tool  involves  two  costs — labor  cost  and 
the  cost  of  waiting."    Illustrate. 

125.  How  is  saving,  or  waiting,  involved  in  the 
building  of  a  house?     In  buying  and  using  a  house? 

126.  "Interest  is  paid  because  capital  is  scarce." 
Why  is  capital  scarce? 

127.  "His   strength  is  his   capital."     Is   capital 
here  used  in  accordance  with  the  economic  definition 
of  capital? 

38 


PRODUCTION:     CAPITAL  39 

128.  Give  examples  of  fixed  capital ;  of  circulating 
capital ;  of  specialized  capital ;  of  free  capital. 

129.  There    are   two   farm   communities,    one    of 
which    saves,   postpones    consumption,    and    devotes 
energy  and  products  to  the  production  of  capital 
goods,  while   the   other  uses   productive   energy   to 
provide  mainly  consumption  goods. 

a.  Which  of  these  two  will  become  the  stronger? 

6.  If  a  similar  difference  in  economic  policy  pre- 
vails in  the  case  of  the  inhabitants  of  two  nations, 
which  nation  will  be  the  more  likely  to  survive  the 
other?  Explain. 

130.  May  a  people  devote  too  much  labor  and 
material  to  the  production  of  capital  equipment  rela- 
tive to  the  amount  they  devote  to  the  production  of 
consumption  goods?     Discuss. 

131.  Is  the  ratio  between  the  amount  of  economic 
energy  that  we  devote  to  producing  production  goods 
and  the  amount  that  we  devote  to  the  production  of 
consumption  goods  satisfactory?     Just  how  does  it 
come  about  that  these  amounts  are  as  they  are? 

132.  "The   American   people   are   very   wasteful. 
They  spend  large  sums  each  year  on  tobacco,  liquor, 
candy,  ice-cream,  et  cetera." 

a.  Do  we  as  a  people  have  less  capital  than  we 


40  PRODUCTION:     CAPITAL 

would  have  if  we  didn't  indulge  so  freely  in  these 
things  ?    Explain. 

6.  If  the  use  of  these  things  represents  a  national 
loss,  does  the  loss  occur  when  the  consumer  buys  them 
or  at  some  other  time?  And  of  just  what  does  the 
loss,  if  any,  consist? 

133.  Explain  in  what  way  the  following  con- 
tribute to  the  efficient  performance  of  the  capitalistic 
function : 

a.  Postal  savings  banks. 

6.  Commercial  banks. 

c.  Stocks  and  bonds  of  small  denominations. 

d.  An  open  stock  market  for  the  buying  and  sell- 
ing of  securities. 


X. 

PRODUCTION:  ENTERPRISE. 

134.  Is  the  function  of  the  enterpriser  separate 
and  distinct  from  that  of  the  laborer,  capitalist,  and 
landlord?     Discuss. 

135.  A,   being  without  available   funds,  borrows 
$1,000  from  his  uncle  to  start  a  grocery  store.  Who 
is  the  enterpriser?     What  is  the  economic  function 
of  the  other? 

136.  "In  plants  wherein  the  workingmen  own  the 
business,  the  place  of  the  entrepreneur  (enterpriser) 
is  taken  by  a  manager  elected  by  the  workmen." 
What  is  the  fault  in  this  statement? — T. 

137.  What  qualities  does  one  need  in  order  to  suc- 
ceed as  an  enterpriser?     Illustrate  by  reference  to 
enterprisers  that  you  know. 

138.  Why  do  we  say  that  every  stockholder  of  a 
corporation  is   an  element  in  the   corporate   enter- 
priser, while  a  bondholder,  who  also  has  capital  in 
the  concern,  is  not? — T. 

41 


42  PRODUCTION:     ENTERPRISE 

139.  If  you  were  a  grocery  clerk  receiving  a  sal- 
ary of  $1,200  per  year  and  an  assured  income  of 
$250  from  $5,000  which  you  possess,  should  you  con- 
sent to  put  your  money  ($5,000)  into  the  business 
and  become  a  partner  if  you  felt  reasonably  certain 
of  having  only  about  $1,450  as  your  yearly  share  of 
the  returns  from  the  store?     On  the  basis  of  your 
answer  formulate  general  principles  in  regard  to  the 
economic  function  and  the  economic  reward  of  the 
enterpriser.    Is  it  possible  that  other  than  economic 
motives  might  influence  your  decision  in  this  case? 
Explain. 

140.  Not  many  years  ago   Mr.  W.,   after  some 
months  of  painstaking  negotiation,  induced  a  num- 
ber of  persons  owning  certain  lands  on  the  Copper 
Range  to  join  with  him  in  organizing  a  corporation 
to  build  a  railroad,  open  mines,  etc., — Mr.  W.  put- 
ting in  some  land  of  his  own.     For  his  fee,  Mr.  W. 
was  to  receive  a  certain  number  of  shares  in  the 
stock  of  the  company.     Distinguish  with  explana- 
tions the  economic  roles  played  by  Mr.  W.  in  this 
matter. — T. 


XI. 

PRODUCTION:   PRODUCTIVE    EFFICIENCY. 
A.  CO-OPERATION — SPECIALIZATION. 

141.  "Specialization    is    now    carried    to    a    far 
greater  degree  than  it  was  one  hundred,  or  even  fifty, 
years  ago." 

a.  What  inventions  have  been  most  responsible 
for  this  increase  in  specialization? 

6.  What  advantages  have  accrued?  What  disad- 
vantages? Discuss.  Do  the  advantages  outweigh 
the  disadvantages?  Discuss. 

c.  Do  you  expect  that  specialization  will  be  car- 
ried still  further?  Discuss. 

142.  "It  is  upon  the  seacoast,  and  along  the  banks 
of  navigable  rivers,  that  industry  of  every  kind  nat- 
urally  begins   to   subdivide   and  improve   itself." — 
ADAM  SMITH,  Th#  Wealth  of  Nations,  Bk.  1,  ch.  3 
(1776).    Account  for  this  fact. 

143.  Should   you   expect   the   aeroplane  and  the 
wireless  telegraph  and  telephone  to  have  any  effect 
upon  the  extent  of  specialization?    Discuss. 

43 


44  PRODUCTIVE  EFFICIENCY 

144.  "The  adjoining  states  of  New  South  Wales 
and  Victoria,  containing-  more  than  60  per  cent,  of 
the  total  population  of  the  Commonwealth  of  Aus- 
tralia,  constructed  their  railroads   with  gauges   of 
four  feet  eight  and  one-half  inches  and  five  feet  three 
inches  respectively,  while  the  three  feet  six  inch  gauge 
prevails,  though  it  is  not  universal,  in  Queensland, 
South  Australia  and  Western  Australia.     Travelers 
by  rail  between  Brisbane,  on  the  eastern  coast  of 
Queensland,  and  Perth,  in  western  Australia,  must 
change  six  times  during  the  journey  of  3,471  miles 
by    reason    of    the   breaks    of    gauge." — Commerce 
Monthly,  Oct.,  1921,  p.  15.     Discuss  the  effect  of 
this  condition  upon  specialization  in  Australia. 

145.  Should  you  expect  that  there  is  greater  ex- 
change of  products  between  the  various  localities  in 
Europe  or  in  the  United  States?     Why?     Is  a  large 
volume  of  such  trading  advantageous  as  compared 
with  a  smaller  volume?     Discuss. 

146.  "One  should  not  depend  upon  others  for  that 
which  is  necessary  to  his  very  existence."     Do  you 
agree?      Mention   some   worker   who    depends    upon 
others  for  everything  that  he  consumes.     Is  he  wise 
or  foolish  in  doing  this? 

147.  "Only   foreign   trade   can   enrich   a  nation. 
Trade  between  sections  of  the  country  cannot  add 
to  national  wealth." 


PRODUCTIVE  EFFICIENCY  45 

a.  Show  that  your  state  is  increasing  its  wealth  by 
trading  with  other  sections  of  the  country* 

6.  Is  there  any  real  difference  as  to  the  economic 
gain  from  internal  trade  and  that  from  foreign 
trade?— (T.) 

148.  "The  explanation  of  the  fact  that  foreign 
commerce  has  played  such  a  small  part  in  the  busi- 
ness of  the  American  people  (normally  about  one 
per  cent)  is  no  doubt  that  our  own  country  has  of- 
fered a  market  so  big  that  it  was  unnecessary,  in 
most  cases,  to  seek  an  outlet  for  goods  elsewhere." — 
The  Awialist,  Jan.  17,  1916,  p.  85.     This  explana- 
tion is,  at  best,  insufficient ;  give  something  better. 

149.  "It  is  a  shame  that  we  must  depend  upon  for- 
eign co-operation  for  any  good.    We  should  produce 
what  we  want  or  go  without." 

a.  Do  you  consider  it  discreditable  to  us  to  rely 
upon  the  foreigner  for  certain  products?     Explain. 

b.  Some   are   disposed   to   see   in   world-wide   co- 
Dperation  a  force  making  for  the  spiritual  unity  of 
all  peoples.     Give  reasons  for  this  view. 

150.  Suppose  our  foreign  market  showed  a  per- 
manent new  shrinkage  of  200  millions  of  dollars  per 
annum,   would   this   mean   that   our  yearly   income 
would  be  200  millions  smaller?     State  the  loss  in 
general  terms. — (T.) 


46  PRODUCTIVE  EFFICIENCY 

151.  From  the  Congressional  Record  for  May  17, 
1909: 

"Mr.  Aldrich:  Assuming  that  the  prices  fixed  by 
the  reports  is  the  correct  one,  if  it  costs  ten  cents 
to  produce  a  razor  in  Germany  and  twenty  cents  in 
the  United  States,  it  will  require  one  hundred  per 
cent  duty  to  equalize  the  conditions  in  the  two  coun- 
tries. .  .  .  And,  so  far  as  I  am  concerned,  I  shall 
have  no  hesitancy  in  voting  for  a  duty  which  will 
equalize  the  conditions.  ...  I  would  vote  for  three 
hundred  per  cent  as  cheerfully  as  I  would  for  fifty." 
To  what  sort  of  an  economic  system  would  such  no- 
tions, if  logically  carried  out,  inevitably  lead? — T. 

152.  "The  farmer  should  sell  his  produce  direct  to 
the  consumer  and  thus  eliminate  the  parasitic  mid- 
dleman." 

a.  Point   out   the   advantages  to   the  farmer   of 
selling  to  the  middleman. 

b.  If  farmers  gain  by  selling  to  middlemen,  are 
the  middlemen  parasitic? 

B.  LABdE  SCALE  PRODUCTION. 

153.  Make  #  detailed  list  of  the  economies  that 
would  result  from  a  combination  of  three  grocery 
stores  into  one  store. 

154.  If  you  were  td1  manufacture  men's   collars, 


PRODUCTIVE  EFFICIENCY  47 

what  advantages  should  you  expect  to  derive  from 
large  scale,  rather  than  small  scale,  production? 

155.  "Particular   cases   of   extensive   advertising 
prove  to  be  of  no  cost  to  anyone,  due  to  the  eco- 
nomies   of   large    scale    production."      Develop    an 
argument,  using  illustrations,  to  support  this  state- 
ment. 

156.  Are  principles  of  large  scale  production  ap- 
plicable to   portrait  painting?      To   photography? 
To  tailoring?     To  the  making  of  kitchen  knives? 

157.  "It  has  been  learned  by  the  experience  of 
business  men  that  when  the  individual  plant  passes 
beyond  a  certain  size,  it  ceases  to  gain  in  efficiency." 
DURAND,  The  Trust  Problem,  p.  69.     Why  should 
you  expect  this  to  be  true? 

158.  List  the  disadvantages   of  large  scale  pro- 
duction from  the  standpoint  of  the  consumer;  from 
the  standpoint  of  the  workers ;  from  the  standpoint 
of  society  generally. 

C.  COMBINATION  OF  INDUSTRIAL  FACTORS. 

159.  "The  efficient  business  man  pays  close  atten- 
tion to  overhead  expenses."     Explain  the  meaning 
of  this  statement. 


48  PRODUCTIVE  EFFICIENCY 

160.  "We  can  pay  only  $1.20  for  an  eight-hour 
day,  but  we  will  pay  thirty  cents  additional  for  a 
nine-hour  day."     Illustrate  concretely  how  a  manu- 
facturer is  able  to  pay  twice  as  much  per  hour  for 
the  ninth  hour  as  for  the  eight  hours. 

161.  The  principle  involved  in  the  above  problem 
can  be  used  to  explain  the  use  of  rebates  and  other 
forms  of  discrimination  by  the  railroads  in  an  effort 
to  increase  traffic.    Explain. 

162.  From  data  in  the  table  in  section  VII,  ar- 
range a  table  for  combinations  9-14,  including  col- 
umns I-IV  as  in  the  table  and  on  the  basis  of  a  cost 
of  $2  per  A  and  $5  per  B,  construct  columns  as 
follows : 

V,  average  cost  per  unit  of  output;  VI,  cost  per 
unit  of  added  output;  VII,  total  receipts  if  sold  at 
fifty  cents ;  VIII,  added  receipts  if  sold  at  fifty  cents ; 
IX,  profit;  X,  total  receipts  if  sold  at  $.4135;  XI, 
added  receipts  if  sold  at  $.4135.  From  data  in  this 
constructed  table,  answer  the  following  questions : 

a.  Which  combination  gives  the  least  cost  per 
unit? 

&.  For  the  combinations  given,  the  plant  is  in  the 
state  of  -SS^  returns;  from  9  to  11  the  costs 
per  unit  JESS,  beyond  11  they  j£S£  Make 
proper  erasure. 


PRODUCTIVE  EFFICIENCY  49 

c.  If  the  product  were  selling  at  fifty  cents  per 
unit,    which    combination    would    you    use?      What 
would  be  your  average  cost?    If  A's  can  be  increased, 
will  it  be  more  profitble  to  increase  A's  with  B's  so 
as  to  maintain  combinations  11,  or  to  increase  B's 
alone? 

d.  With  the  costs  for  A  and  B   as  given,  what 
price  will  come  to  prevail  under  free  competition? 

e.  Show  that  the  per  cent  of  profit  received  is  no 
indication  as  to  whether  the  plant  is  in  the  stage  of 
diminishing  returns  or  in  some  other  stage. 

163.  Which  is  relatively  the  more  expensive,  the 
coal  or  the  furnace  used  in  heating  a  house?    Should 
one  plan  to  buy  a  furnace  that  will  normally  be 
worked    in    a    combination    near   the   beginning   of 
diminishing  returns  or  near  the  point  of  maximum 
returns?     Why  is  the  word  normally  used? 

164.  "When  I  build  my  house  I  shall  put  in  two 
furnaces,  a  large  one  for  cold  weather,  and  a  small 
one  for  mild  weather." 

a.  Argue  that  this  might  be  a  wise  plan  if  one  lived 
where  the  winters  are  long. 

b.  Can  you  think  of  any  condition  in  industry  that 
is  analogous  to  this  case? 

165.  Are  industrial  plants  likely  to  be  in  the  stage 


50  PRODUCTIVE  EFFICIENCY 

of  diminishing  returns,  or  increasing  returns,  during 
boom  times?     During  periods  of  depression? — (T.) 

166.  Show  that  the  problem  of  the  combination  of 
factors  is  involved  in  determining  the  height  of  office 
buildings. — (C.) 


XII. 
PRODUCTION:  FORMS  OF  ORGANIZATION. 

167.  If  you  were  planning  (1)  to  write  a  book, 
(2)  to  practice  law,  (3)  to  open  a  bookstore,  or,  (4<) 
to   manufacture   threshing   machines,    what    advan- 
tages, or  disadvantages,  would  come  (a)  from  form- 
ing a  partnership;  (6)  from  organizing  a  corpora- 
tion? 

168.  "Since  all  the  profits  of  a  corporation  go  to 
the  stockholders,  it  is  unfair  that  debts  beyond  cor- 
porate value  should  fall  upon  creditors;  I  object, 
therefore,  to  the  limited  liability  of  the  corpora- 
tion.'*    Should  you  favor  legislation  making  stock- 
holders liable  for  all  debts  contracted  by  the  cor- 
poration?    Discuss  fully. 

169*  "I  weigh  my  words,  when  I  say  that  in  my 
judgment  the  limited  liability  corporation  is  the 
greatest  single  discovery  of  modern  times,  whether 
you  judge  it  by  its  social,  by  its  ethical,  by  its  indus- 
trial, or  in  the  long  run, — after  we  understand  it  and 
know  how  to  use  it, — by  its  political  effects.'* — 
PRESIDENT  BUTLER,  quoted  in  Proceedings  of  The 

51 


52  FORMS  OF  ORGANIZATION 

National  Tax  Association,  1912,  p.  187.     Suggest 
reasons  for  this  view  of  the  corporation. 

170.  Are  the  economic  advantages  of  corporate 
organization  enhanced  by  the  fact  that  shares   of 
stock  are  issued  in  small  denominations,  usually  $100, 
and  always  have  a  ready  market  on  the  stock  ex- 
change?   Explain. 

171.  "The  inflation  of  the  capitalization  of  a  cor- 
poration is  called  stock  watering." 

a.  Why  should  stockholders  wish  to  increase  the 
nominal  capital  of  the  corporation? 

6.  How  may  the  public  suffer  from  stock  water- 
ing in  the  case  of  public  utility  corporations?  Il- 
lustrate. 

172.  "This  corporation,  engaged  in  the  manufac- 
ture  of   brick,   is    greatly   over-capitalized;    conse- 
quently the  consumers  have  to  pay  an  unfair  price 
for  bricks."     Is  this  conclusion  sound?     Discuss. 

173.  "4,508  manufacturing  corporations  with  in- 
vested capital  of  $100,000  and  over  reported  to  the 
United  States  Government  in  1917  capital  stock  of 
$1,619,045,004  and  invested  capital,  as  that  term  is 
defined  under  the  1917   excess  profits  tax  law,  of 
$2,947,535,517."— FRIDAY,     Profits,     Wages,     and 


FORMS  OF  ORGANIZATION  53 

Prices,  p.  63.  What  is  the  per  cent  of  invested  capi- 
tal to  capital  stock?  What  conclusion  may  we  draw 
from  these  figures  relative  to  stock  watering  in 
manufacturing  corporations? 

174*.  "To  sell  out  (dispose  of  stock)  when  the 
affairs  of  a  corporation  are  going  badly,  to  buy  in 
when  they  are  going  well,  is  the  height  of  business 
acumen." — TAUSSIG,  Principles  of  Economics,  vol.  1, 
p.  86. 

a.  Is  this  condition  at  all  undesirable?     Explain. 

fe.  What  general  advantage  results  from  this  pro- 
cedure? 

c.  What  institution  makes  such  procedure  pos- 
sible? 

175.  "One  result  of  the  corporate  organization  of 
industry  is  that  many  persons  who  loan  capital  have 
no  control  over  the  use  made  of  it,  or  over  the  treat- 
ment given  to  the  employees  whose  employment  it 
makes  possible.'5 

a.  Explain  why  this  is  true. 

b.  Discuss  the  advantages  and  the  disadvantages 
of  the  situation. 

c.  Can  you  suggest  any  remedies  tending  to  cor- 
rect the  disadvantages?    Would  the  sale  of  the  stock 
of  "bad"  corporations  by  righteous  owners  be  a  cor- 
rective measure?    Discuss  fully. 


54  FORMS  OF  ORGANIZATION 

176.  Why  have  industrial  conditions  since,  rather 
than!  before,  the  industrial  revolution,  stimulated  the 
growjh  gf  corporations? 


XIII. 
SOME  SPECIAL  CASES  OF  PRODUCTION. 

A.  SPECULATION. 

(1)  Produce  Speculation. 

177.  Is  the  risk  of  price  fluctuation  greater  or  less 
than  it  was  100  years  ago? 

178.  "Every  man  who  buys  a  good  to  sell  again  is 
a  speculator."    Is  this  true? 

179.  Is  it  economical  to  society  to  have  a  separate 
speculating  class? 

180.  " Speculation  is  the  taking  of  necessary  risks  ; 
gambling  is  the  taking  of  unnecessary  risks."     Illus- 
trate the  truth  of  both  parts  of  this  statement. — T. 

181.  A  miller  buys  10,000  bushels  of  wheat  in  Oc- 
tober at  $1  per  bushel  and  expects  to  sell  the  flour  in 
December  at  the  price  then  prevailing.    If  the  price 
of  wheat  should  rise  and  cause  a  rise  in  the  price 
of  flour,  he  will  gain  from  his  purchase  of  wheat,  but 
if  the  price  should  fall  he  will  lose.     Such  gain  or 

55 


56         SPECIAL  CASES  OF  PRODUCTION 

loss  has  no  relation  to  his  ability  as  a  miller.     He 
does  not  wish  to  bear  the  risk  of  such  a  loss. 

a.  Who  will  bear  this  risk  for  him?  How  will  this 
other  person  be  recompensed  for  doing  this?  By 
just  what  process  will  this  second  person  assume  the 
risk?  Is  it  socially  worth  while  to  have  a  special 
class  of  persons  who  will  assume  these  risks? 

6.  If  October  wheat  is  $1  and  the  cost  of  carrying 
wheat  until  December  is  three  cents  per  bushel,  then 
December  wheat  will  be  worth  $1.03  in  October.  If 
the  miller  sells  short  for  December  at  the  time  he 
buys  the  wheat  he  is  to  grind,  his  account  will  stand 
as  follows: 

WHEAT  FOR  MILLING 

10,000  bushels  at  $1 $10,000 

Storage,  insurance,  etc.,  two  months,  3c 300 


Total  cost $10,300 

FUTURE,  OR  SHORT  SALE 

10,000  bushels  to  be  delivered  in  December  at 
$1.03    $10,300 

Total  selling  price  of  short  sale $10,300 

If  the  price  is  $1  in  December,  how  much  will  the 
miller  lose  on  his  flour  due  to  the  fact  that  the  price 
of  wheat  is  $1  rather  than  $1.03  as  expected?  But 
as  he  can  buy  wheat  at  $1,  and  deliver  10,000  bushels 
at  $lf03,  he  will  make  what  sum  on  his  short  sale? 
Do  his  loss  and  gain  balance?  If  so,  how  does  he 
make  any  money? 


SPECIAL  CASES  OF  PRODUCTION         57 

c.  Assume  price  to  have  risen  to  $1.08  in  Decem- 
ber and  compute  the  miller's  gain  or  loss  on  each 
transaction  ? 

d.  Why  use  the  term  "selling  short"?— (T.) 

182.  Argue  that  wheat  speculation,  as  illustrated 
here,  tends  to  lower  the  price  of  flour. 

183.  Consult  the  daily  paper  and  find  the  price  of 
wheat  to-day.    What  is  the  price  of  futures  ? 

184.  A  manufacturer  of  cotton  goods  buys  raw 
material  in  February.    He  expects  to  have  the  goods 
ready  for  market  in  May*    How  can  he  escape  the 
risk  of  losing  through  a  decrease  in  the  price  of  cot- 
ton if  he  is  unable  to  sell  the  goods  in  advance?    Il- 
lustrate. 

185.  If  the  ripening  wheat  crop  should  be  seri- 
ously damaged  suddenly,  what  would  wheat  specula- 
tors do?    Would  this  activity  be  to  the  advantage  or 
disadvantage  of  consumers  of  flour?    Discuss. 

186.  Taylor    says    that    the    chief   functions    of 
speculation  in  produce  are:  (1)  to  establish  proper 
price;  (2)  to  secure  the  bearing  of  the  risk  burden  of 
ownership  in  the  easiest  and  cheapest  way?     Show 
how  each  of  these  ends  is  secured. 

(2)   Speculative  Trading  in  Stocks  and  Bonds. 


58         SPECIAL  CASES  OF  PRODUCTION 

187.  "The  buying  and  selling  of  stocks  and  bonds 
encourages  the  investment  of  capital."     Show  that 
this  is  true. 

188.  "The   function    of   enterpriser    can    be    effi- 
ciently performed  only  in  case  capital  is  available." 

a.  Support  this  statement. 

6.  Does  the  stock  market  help  to  make  capital 
available ?    Explain. 

189.  "The  efficiency  of  the  corporation  as  a  fac- 
tor in  production  is  greatly  enhanced  by  the  exist- 
ence of  the  stock  market."     By  a  hypothetical  case, 
show  that  this  statement  is  true. 

190.  "We  have  borrowed   an   enormous   sum   of 
capital  from  abroad  during  our  history." 

a.  In  what  form  have  we  imported  this  capital? 
6.  How  have  the  loans  been  negotiated? 
c.  How  have  the  debts  been  paid  when  payment 
was  desired? 

191.  Note    the   prices    of   the   various    securities 
listed  in  the  daily  papers.     Why  are  there  such  dif- 
ferences in  the  prices  of  securities? 

192.  "The  New  York  stock  exchange  is  at  once 
the  greatest  institution  in  the  world  for  facilitating 
investment  and  the  greatest  of  gambling  hells." — 


SPECIAL  CASES  OF  PRODUCTION         59 

TAUSSIG,  Principles  of  Economics,  vol.   1,  p.   165. 
Show  how  the  stock  market  performs  this  double  role. 

B.  INSURANCE. 

193.  "Insurance  eliminates  risks."     Is  this  true? 
Do  fire  insurance  companies  prevent  fire?     Do  they 
prevent  fire  losses  to  individuals?    Just  what  is  their 
function  ? 

194.  "No,  that  building  that  just  burned  was  not 
insured.     I  have  not  insured  a  building  for  seven 
years.'* — A  successful  farmer.     Why  doesn't  he  in- 
sure his  buildings?     Why  do  you  suppose  this  man 
stopped  insuring  them  at  the  time  he  did  rather  than 
earlier? 


XIV. 
PRODUCTION  AND  DISTRIBUTION. 

195.  What  does  the  word  distribution  mean  as  it 
is  commonly  used  by  business  men?     What  does  the 
economist  mean  by  distribution? 

196.  Through  what  doors  are  the  products  of  our 
industry  distributed,  that  is,  what  are  the  shares  in 
distribution?    Are  the  two  processes,  production  and 
distribution,  separate  and  distinct?     Do  not  forget 
to  explain. 

197.  "Distribution   is    determined   by    the    prices 
that  are  set  upon  the  production  factors."    Explain. 

198.  Is  the  subject  of  distribution  of  wealth  more 
important   to-day  than  it  was   at  the  time  of  the 
industrial  revolution?     If  so,  explain  why. 

199.  "One's  wages-of -management  is  the  amount 
that  he  could  command  as  salary  if  he  should  choose 
to  work  for  another  rather  than  for  himself."     Is 
this  sound?     If  so,  are  wages-of-management  merely 
wages  ? 

60 


PRODUCTION  AND  DISTRIBUTION        61 

200.  "Opposed  to  the  fact  that  fully  nine-tenths 
of  the  products  of  current  industry  are  not  in  con- 
sumable form  is  the  equally  certain  fact  that  prac- 
tically the  entire  money  income  is  spent  for  goods 
that  are  ready  for  consumption." — SEAGER,  p.  180. 

a.  What  part  of  the  productive  effort  that  is  spent 
in  producing  bread  is  spent  upon  the  day  that  the 
bread  is  purchased  for  consumption?    About  what  is 
the  remotest  date  at  which  any  of  that  effort  was 
performed? 

b.  Answer  similar  questions  in  regard  to  coffee. 

c.  Suggest   an   article  where  production   is   com- 
pleted in  one  day. 

d.  If  producers  are  paid  largely  in  products  the 
production  of  which  has  extended  over  a  long  period 
of  time,  do  they  get  an  equivalent  of  what  they  pro- 
duce inasmuch  as  production  methods  are  constantly 
becoming  more  efficient? 

201.  What  do  you  understand  by  the  expression 
the  yearly  income  of  the  nation?    The  yearly  net  in- 
come of  the  nation?     The  annual  national  dividend? 
The  annual  national  product? 


XV. 

DISTRIBUTION:  RENT. 

A.  THE  NATURE  AND  ORIGIN  OF  LAND  RENT. 

202.  "Rent  is  the  price  paid  for  the  use  of  land." 
a.  What  determines  the  rent  that  tenants  pay  for 

agricultural  land? 

6.  What  determines  the  rent  that  is  paid  for  city 
lots  for  business  purposes?     For  residence  sites? 

203.  "Rent  on  any  parcel  of  land  is  due  to  the  fact 
that  the  market  value  of  the  product  from  that  land 
rises  above  the  cost  of  producing  it,  including  neces- 
sary profit." 

a.  Argue  in  support  of  this  statement. 

b.  Account  for  the  fact  that  the  market  value  of 
the  product  from  a  parcel  of  land  may  exceed  the 
cost  of  production. 

204.  "Price  rose  from  thirty  cents  to  forty  cents 
per  bushel,  thus  making  it  possible  to  farm  poorer 
land,  and,  as  a  result  of  farming  the  poorer  land, 
rent    emerged    on    the    best,    or    thirty-cent    land." 
Criticise  this  statement. — (T.) 

62 


DISTRIBUTION:     RENT  63 

205.  "Rent  is  measured  by  the  method  of  differ- 
ences,  starting  from  the  no-rent  land  margin   and 
proceeding  from  grade  to  grade  until  the  best  and 
most  favorably  situated  lot  for  the  purpose  that  is 
economically  most  important  is  reached." — S EAGER, 
p.  241. 

a.  Is  it  necessary  to  have  no-rent  land  in  order 
to  have  rent? 

b.  "This  method  of  measuring  rent  is  based  on  the 
assumption  that  land  varies  in  productivity  by  in- 
finitesmal  differences."    Do  you  agree?     Discuss. 

206.  Distinguish  between  the  intensive  margin  of 
cultivation  and  the  extensive  margin.     Is  there  any 
land  at  the  extensive  margin  in  your  state?     Are 
there  any  products  produced  at  the  intensive  margin 
in  your   state?      Show  that   the  price   of  potatoes 
tends   to   equal  the   cost  of  producing  potatoes   at 
the  extensive  margin  of  cultivation ;  at  the  intensive 
margin. 

207.  What  influence  do  you  expect  that  the  re- 
frigerator car  has  had  upon  agricultural  rent?    The 
automobile?     The  telephone? 

208.  If  a  subway  should  be  constructed  in  a  large 
city,  what  effect  should  you  expect  this  to  have  upon 
the  rent  of  land  (1)  in  the  downtown  business  dis- 


64.  DISTRIBUTION:     RENT 

trict,  (2)  in  the  residence  district  adjacent  to  the 
downtown  business  district,  (3)  in  the  outlying  busi- 
ness district,  (4)  in  the  outlying  residence  district? 

209.  "Walk  upstairs  and  save  five  dollars  on  a 
suit  of  clothes.     Our  prices  are  less  because  our  rent 
is  less.'5     Are  their  prices  less  because  their  rent  is 
less?     Is  their  rent  less  because  their  prices  must  be 
less  than  their  ground  floor  competitors?     Discuss. 

210.  "Trade  with  us.    Since  we  own  our  own  store, 
we  do  not  have  to  pay  any  rent,  consequently  our 
prices   are  lower."      Make   a   similar   statement   in 
which  a  merchant  would  claim  that  his  prices  were 
low  because  he  did  not  have  to  pay  wages.     Discuss 
the  point  at  issue. 

B.  THE    RELATION    OF    RENT    AND    THE    SELLING 
PRICE  OF  LAND. 

211.  a.  If  a  tract  of  land  is  bearing  $400  rent  and 
if  it  is  expected  that  this  figure  will  not  change,  and 
men  are  satisfied  with  five  per  cent  income  from  land, 
what  price  will  be  set  on  this  tract?     What  price  if 
the  rate  of  capitalization  is  three  per  cent? 

&.  If  this  land  should  be  expected  to  bear  $500 
rent  five  years  from  now,  and  $600  ten  years  from 
now,  would  this  affect  the  market  price  of  the  land? 
In  terms  of  interest  earnings,  what  effect  would  such 


DISTRIBUTION:     RENT  66 

an  expected  increase  in  rent  have  upon  the  income 
from  land? 

212.  If  a  house  and  lot  rents  for  $40  per  month 
how  could  you  determine  the  approximate  market 
value  of  the  lot? 

213.  A  certain  piece  of  land  yields  twenty  bushels 
of  wheat  per  acre,  the  expenditure  per  acre  being 
$10.     With  land  on  the  margin  of  cultivation  yield- 
ing ten  bushels  for  the  same  expenditure,  and  with 
the  rate  of  capitalization  five  per  cent,  what  value 
would  an  acre  of  the  twenty-bushel  land  tend  to  have 
when  there  was  a  tax  on  it  equal  to  eighty  per  cent 
of  the  rent?     Put  down  in  your  answer  each  step  in 
the  solution,  and  explain  fully. — T. 

214.  "The  price  of  land  has  risen  recently,  so  the 
landowners  are  demanding  more  rent."     Is  this  rea- 
sonable?    Explain. 

C.  THE  SOCIAL  ASPECT  OF  RENT. 

215.  "As,  with  increasing  population,  there  falls 
out,  per  capita,  a  smaller  product  in  society  to  be 
divided,   there  goes   to   the  landlords   a   larger  and 
larger  proportion  of  this  more  and  more  tragically 
inadequate  total.    The  landlords  gain  by  the  general 
ill-fortune.     Those  classes  disinherited  of  land  are 
doomed  to  a  double  and  compounded  pressure  of  ad- 


66  DISTRIBUTION:     RENT 

versity.  The  land  famine  smites  them  with  both 
edges  of  its  sword."  —  DAVENPORT,  Economics  of  En- 
terprise, p.  180.  Illustrate  this  contention  by  refer- 
ring to  the  table  of  combining  proportions  in  section 
VII.  What  are  the  two  edges  of  the  sword? 

216.  Argue  that  under  government  ownership  of 
land  justice  would  require  that  rent  be  charged  for 
residence  sites  so  soon  as  two  persons  came  to  desire 
the  same  site.  Is  it  probable  that  there  could  be  a 
community  in  which  two  or  more  persons  would  not 
desire  the  same  site? 


217.  Is  it  wise  to  have  private  ownership  of  land? 
If  so,  can  we  safely  take  all  the  rent  from  the  owners 
by  imposing  taxes  equal  to  the  rent?     Can  we  safely 
take  part  of  it?     Discuss  fully. 

218.  Is  there  a  particular  reason  why  the  land 
rent  due  to  public  improvement  should  be  taxed  into 
the  public  treasury?     Explain. 

219.  If  the  state  owned  all  the  land,  could  indi- 
viduals secure  land  more  easily  than  they  can  to- 
day?   Explain. 

220.  Suppose  that  I  own  a  farm  in  Ohio  and  rent 
it  for  cash  rent  of  $500  per  year.     Do  I  earn  the 


DISTRIBUTION:     RENT  67 

$500?    Does  the  tenant  earn  it?    Who  does  earn  it? 
Why?— P. 

221.  Do  you  expect  that  total  land  rent  will  in- 
crease or  decrease  in  the  United  States?  Explain. 
May  the  land  rent  in  certain  sections  be  confidently 
expected  to  increase?  Discuss. 


XVI. 
DISTRIBUTION:  WAGES. 

A«  THE  DETERMINATION  OF  WAGES. 

222.  "An  industrial  society  in  which  certain  per- 
sons are  paid  $500  per  day  while  thousands  of  their 
brothers  are  paid  only  $2  per  day  is  indefensible." 
Do  you  agree?     Discuss  fully. 

223.  Assume  a  community  in  which  the  raising  of 
corn  is  the  main  industry. 

a.  What  will  determine  the  wages  in  corn  that 
rival  farmers  will  pay?  Will  this  increase  or  de- 
crease as  population  increases?  Will  all  of  the  farm- 
ers, or  only  certain  farmers,  be  forced  to  pay  all 
that  they  could  pay?  Explain.  See  table  in  sec- 
tion VII. 

6.  How  would  wages  be  affected:  (1)  if  the  meth- 
ods of  raising  corn  should  be  improved;  (2)  if  im- 
proved transportation  facilities  should  make  more 
corn  land  available;  (3)  if  gold  should  be  discovered 
in  adjacent  territory? 

224.  Why  are  wages  higher  in  Montana  than  in 
Georgia  ? 

68 


DISTRIBUTION:     WAGES  69 

225.  "Women  are  paid  less  than  men  for  similar 
work."    Are  they?    If  so,  why? 

226.  "The  economists  teach  that  free  bargaining 
between  capital  and  labor  will  give  the  laborer  just 
or  reasonable  wages."     Show  that  the  economists  do 
not  teach  that  free  bargaining,  but  rather  that  keen 
competition,  will  give  just  wages. — (T.) 

227.  a.  Under  what  conditions  will  an  increase  in 
the  wage  rate  by  legislation  reduce  the  number  of 
persons  that  are  employed? 

6.  "If  employers  do  not  bid  against  each  other 
keenly  for  labor,  the  wages  that  prevail  might  be 
raised  by  legislation  without  causing  unemployment." 
Is  this  sound?  Do  employers  bid  against  each  other 
as  keenly  for  labor  as  for  raw  materials?  Discuss. 

c.  "If  low  paid  workers  are  given  an  increase  in 
wages,  they  may  be  worth  more, — they  themselves 
may  become  more  efficient,  and,  also,  the  employer 
may  become  more  efficient."  Is  this  reasonable? 
Discuss. 

228.  "The  employer's  interest  is  in  money  wages ; 
the  laborer's  interest  is  in  real  wages."     Discuss. 

229.  In  defending  the  organization  of  trusts,  and 
the  consequent  restraint   of   competition,   an   argu- 
ment like  this  is  sometimes  used:     "Competition  in 
the  sale  of  goods  so  reduces  prices  that  it  is  impos- 


70  DISTRIBUTION:     WAGES 

sible  to  pay  fair  wages  to  the  workman."  Defend 
the  contention  that  the  competition  which  tends  to 
reduce  the  prices  also  tends  to  raise  wages. — T. 

230.  Just  how  does  it  come  about  that,  all  other 
things  being  equal,  the  occupation  that  is  agreeable 
pays  a  lower  wage  than  the  occupation  that  is  dis- 
agreeable ?     Illustrate. 

231.  "If  you  are  an  American  wage-worker  using 
modern  machinery  in  an  up-to-date  plant,  you  pro- 
duce each  day  goods  that  sell  at  retail  for  at  least 
$10.     But  you  don't  get  the  $10 ;  you  get,  on  an 
average,  about  $2;  somebody  else  gets  the  $8."- 
CHAS.  H.  KERB,,  in  a  socialist  pamphlet.     Show  that, 
if  the  wage- worker  in  question  did  get  the  whole  $10, 
he  would  be  cheating  some  other  wage-worker  as  well 
as  some  non-wage  workers. — T. 

232.  "Wages  are  apt  to  be  fixed  much  closer  to 
the  minimum  which  the  laborer  will  take  than  the 
maximum  which  the  employer  will  pay;  for  the  lat- 
ter has  much  more  skill  and  strength  in  bargaining." 
Construct  a  demand  and  supply  schedule  according 
to  which  employers  will  pay  $5  per  day  for  100,000 
days'  labor  and  employees  will  take  $1.50  per  day 
for  that  amount  of  labor.     Show  that  it  is  possible 
that  the  wage  may  be  set  at  $5.    Is  it  probable  that 
it  will  be  nearer  $5  or  $1.50?— (T.) 


DISTRIBUTION:     WAGES  71 

233.  "The  capitalists  own  the  tools  of  production 
and  can  thus  force  the  workman  to  take  any  wage, 
since  labor  cannot  work  without  tools." 

a.  Do  you  agree?    Discuss. 

6.  Turn  the  quotation  about  so  that  the  laborers 
will  appear  able  to  dictate  the  wage. — (T.) 

234.  Why  do  most  surgeons  receive  incomes  that 
are  greatly  in  excess  of  the  incomes  that  are  received 
by  most  physicians? 

235.  "Men  love  to  excel  at  difficult  and  important 
tasks.    The  instinct  of  workmanship  and  social  pres- 
tige will  hold  them  to  the  socially  important  work. 
Differences  in  financial  remuneration  are  not  neces- 
sary."    Do  you  agree?     If  not,  do  you  believe  that 
there  is  any  merit  in  this  contention?    Discuss  fully. 

236.  If  you  were  to  go  into  a  community  as  a 
dentist,  what  would  determine  the  prices  that  you 
would  set  upon  your  services?     Would  you  be  at  all 
influenced  by  the  fact  that  there  were,  or  were  not, 
other  dentists  in  this  community?     Explain. 

237.  "Competition  is  not  effective  in  determining 
physician's  fees,  else  the  fees  would  be  lowered,  as 
competition  is  very  keen." 

a.  Account  for  the  fact,  assuming  it  to  be  true, 
that  physicians*  fees  are  not  lowered  by  competition. 


72  DISTRIBUTION:    WAGES 

b.  Argue   that   large   fees    result   in    competition 
which  reduces  income,  although  it  does  not  reduce 
particular  fees. 

c.  May    large    fees    result    in    our   having    more 
physicians  than  we  really  need?    Discuss. 

238.  a.  Does   special  educational  training  for  a 
!ew  increase  the  wages  of  these  few?     Why? 

&.  Would  equivalent  education  for  all  lower  the 
wages  of  the  "few"? 

c.  Would  such  education  for  all  increase  general 
wages  over  what  they  would  otherwise  be?     Why? 

d.  Suggest  a  program  looking  toward  the  equali- 
zation of  wages  during  the  next  100  years. 

B.  WAGES  AND  THE  STANDARD  OF  LIVING. 

239.  "There   is    a   vital    connection   between    the 
population  question  and  the  wages  question."    Dis- 
cuss. 

240.  "No  remedies  for  low  wages  have  the  smallest 
chance  of  being  efficacious,  which  do  not  operate  on 
and  through  the  minds  and  habits  of  the  people. "- 
MILL.     Argue  for  the  truth  of  this  statement.     (It 
probably  needs  qualification ;  but  leave  that  for  some 
other  occasion.) — T. 

241.  "The  standard  of  living  keeps  wages  up." 


DISTRIBUTION:    WAGES  73 

"How  so?  Men  must  work  for  what  they  can  get. 
Their  standard  of  living  will  not  enable  employers 
to  pay  them  more  than  the  competitive  wage."  Does 
the  point  made  in  the  second  quotation  disprove  the 
position  taken  in  the  first?  Explain. 

242.  Are  the  wages  of  carpenters  determined  by 
their  standard  of  living,  or  by  the  standard  of  living 
of  their  social  group,  or  is  their  standard  of  living 
determined  by  their  wages?     Are  not  their  wages 
determined  by  their  productivity?     Discuss  fully. 

243.  Is  the  "long  time"  concept  vital  in  the  con- 
sideration of  the  wage  and  standard  of  living  prob- 
lem?    Explain. 

C.  EMPLOYMENT. 

244.  According  to  a  principle  formulated  by  J.  B. 
Say  (Say's  Law),  the  goods  and  services  which  are 
offered   on   the  market   constitute   the   demand   for 
other  goods  and  services.     Show  that  the  farmer's 
demand  is  conditioned  by  his  supply;  the  manufac- 
turer's ;  the  musician's. 

245.  "The  snowfall  was  a  great  blessing  to  labor, 
for  the  city  had  to  employ  a  large  number  of  men  to 
remove  the  snow  from  the  streets." — A  news  item. 

a.  Did  this  benefit  certain  laborers? 

6.  Was  it  a  benefit  to  laborers  generally? 


74  DISTRIBUTION:     WAGES 

246.  "A  store  burned  in  our  town  and  relieved  the 
unemployment  situation.     It  was  a  blessing  to  the 
laboring  man."     Illustrate   concretely   how   certain 
laborers  may  be  expected  to  have  lost  because  of  this 
fire. 

247.  Discuss  the  short  time  effect  upon  employ- 
ment  of   the  introduction   of  machinery   that   per- 
manently reduces  by  one-half  the  number  of  laborers 
needed  in  a  particular  line  of  work;  the  long  time 
effect. 

248.  "The  college  professor's  wife  who  makes  her 
own  dress  is  unfair  to  those  persons  who  must  work 
for  a  living."    Criticise. 

249.  Minnesota  labor  unions  petitioned  the  1915 
legislature  to  defeat  the  county  option  liquor  bill  on 
the  ground  that  the  closing  of  the  saloons  and  brew- 
eries would  throw  a  great  number  of  men  out  of  work. 
Discuss  the  effect  that  national  prohibition  has  had 
on  employment. 

250.  "Prison   labor    should   be   devoted    to    road 
building  and  thus  not  brought  into  competition  with 
free  and  honest  labor."     Argue  that  it  is  to  the  ad- 
vantage of  free  labor  to  have  prison  labor  produce 
as  many  goods  as  possible. — (T.) 


XVII. 
DISTRIBUTION:  INTEREST 

A.  THE  NATURE  OF  INTEREST. 

251.  "Saving,  or  abstinence,  is  necessary  to  the 
existence  of  capital."    Is  this  true?    Could  Robinson 
Crusoe  have  a  fish-net  without  saving  or  abstinence? 
-(T.) 

252.  The  interest  problem  is :     Why  does  capital 
yield  an  excess  over  replacement?    That  is,  why  does 
a  tool  give  a  product  that  is  more  valuable  than  the 
tool?     The  problem  is  answered  by  answering  the 
question:    Why  do  we  not  have  so  many  tools  that 
the  value  of  the  product  declines  to  the  value  of  the 
tool? 

a.  Answer  the  last  question. 

6.  Show  that  this  answer  is  an  answer  to  the 
second  question,  and  that  the  second  is  only  a  re- 
statement of  the  first. 

253.  "The  interest  that  capitalists  receive  is  in  no 
sense  subtracted  from  the  reward  that  goes  to  labor." 
Explain  and  defend  this  statement. 

75 


76  DISTRIBUTION:     INTEREST 

254.  a.  Assume  a  communistic  society  and  show 
that  justice  would  require  that  the  persons  request- 
ing wine  at  the  common  store  house  in  exchange  for 
certain  claim  checks  should  be  given  a  smaller  quan- 
tity than  is  given  in  grape  juice  to  persons  present- 
ing similar  claim  checks. 

b.  Show  that  in  a  socialistic  society  certain  prod- 
ucts will  require  equipment  that  will  involve  more 
waiting  than  is  required  for  other  products.  Show 
that  the  persons  using  the  products  involving  wait- 
ing should,  in  justice,  pay  more  than  the  labor  costs 
involved.— (T.) 

255.  Interest  is  either  explicit  or  implicit.     Ex- 
plicit interest  is  manifested  in  loan  contracts.     Im- 
plicit interest  is  manifested  in  the  prices  paid  for 
goods  or  for  the  use  of  goods.     For  example: 

a.  A  produced  goods  sells  for  a  price  higher  than 
its  costs  in  other  goods  and  labor. 

b.  A  produced  good  hires,  or  rents,  for  a  daily  or 
monthly  price  that  is  more  than  sufficient  to  return 
during  its  life  time,  the  market  value  of  the  good. 

c.  A  non-producible  income-bearing  good  sells  for 
a  price  lower  than  the  sum  of  the  expected  incomes. 

Illustrate  each  of  these  three  cases  of  implicit  in- 
terest.—(T.) 

256.  a.  Under  what  conditions  would  you  pay  in- 
terest for  consumption  purposes?  For  production 
purposes? 


DISTRIBUTION:     INTEREST  77 

6.  Why  is  not  the  amount  available  for  borrowers 
so  abundant  that  they  need  not  pay  for  its  use? 

c.  What  do  lenders  sacrifice  in  loaning?  Under 
what  conditions  would  you  loan  gratuitously?  At 
the  normal  rate  of  interest?  Only  at  an  excessive 
rate,  say  twenty-five  per  cent? 

B.  THE  RATE  OF  INTEREST. 

257.  How   much   more   efficient   are   the   present 
highly  capitalistic  methods  of  grinding  flour  in  Min- 
neapolis than  were  the  Indian  methods  that  used  to 
prevail  in  that  locality?     Estimate  roughly  the  in- 
terest rate  that  we  could  afford  to  pay  for  the  use 
of  milling  machinery  rather   than   go   without  it? 
What  is  paid?     How  do  you  account  for  this  dif- 
ference? 

258.  What  is  meant  by  saying  that  the  rate  of 
interest   is  just   sufficient   to   induce  the   marginal 
saver  to  save?    If  this  is  true,  then  what  would  tend 
to  be  the  effect  upon  the  volume  of  saving  if  the  rate 
of  interest   should  rise,  due  to   an  increase  in   the 
demand  for  capital?     If  the  rate  of  interest  should 
fall,  due  to  a  falling  off  in  the  demand  for  capital? 
Is  it  necessary  for  the  analysis  involved  in  the  second 
and  third  of  these  questions  to  assume  that  all  other 
conditions  remain  as  before,  for  example,  that  the 
amount  of  income  that  people  receive  remains  the 
same,  and  that  the  prospects  for  a  continuance  of 


78  DISTRIBUTION:     INTEREST 

these  incomes  does  not  change?  As  a  matter  of  fact, 
are  these  other  conditions  the  same  under  varying 
conditions  of  demand  for  capital?  If  not,  is  it 
necessary  to  prove  the  relation  between  the  rate  of 
interest  and  the  amount  of  saving  by  reasoning  de- 
ductively rather  than  inductively?  Discuss  fully. 

259.  "It  is  foolish  to  insist  that  interest  must  be 
paid  because  of  the  sacrifice  of  saving  when  many 
rich  men  cannot  help  saving.    It  would  be,  not  only 
much  more  burdensome,  but  impossible  for  them  to 
consume   their   incomes."     Discuss   this   statement. 
-(T.) 

260.  "The  pure  interest  rate  tends  to  be  the  same 
.n  all  lines  of  industry." 

a.  What  is  meant  by  the  "pure  interest  rate"? 

b.  Argue  in  support  of  the  statement. 

c.  How  do  you  account  for  the  differences  in  the 
rates  of  income  earned  in  different  industries? 

261.  The  rate  paid  for  loans  has  generally  been 
much  higher  in  the  western  part  of  the  United  States 
than  it  has  been  in  the  eastern  part.     How  do  you 
account  for  this? 

262.  If  the  wages  of  unskilled  labor  should  be 
$3.00  per  day  and  the  rate  of  pure  interest  5  per  cent 
for  a  long  period  of  time,  what  changes  would  tend 


DISTRIBUTION:     INTEREST  79 

to  take  place  if  wages  should  rise  to  $4.00  per  day? 
If  they  should  faU  to  $1.50?     Why? 

263.  Hie:h  wages  tend  to  cause  an  increase  in  the 
interest  rate.    Explain. 

264.  "The  rate  of  interest  tends  to  represent  at 
once  the  productivity  of  capital  and  the  disutility  of 
supplying  capital."     Assuming  the  statement  to  be 
true,   show  by  just  what  process   this  is  brought 
about. 

265.  If  the  cost  of  building  a  mile  of  macadam 
road  is  $6,500,  a  mile  of  concrete  road  $12,000,  and 
a  mile  of  brick  road  $18,000 ;  and  if  the  annual  cost 
per  mile  of  keeping  the  roads  in  good  repair  is  $600 
for  the  macadam  road,  $300  for  the  concrete,  and 
$50  for  the  brick,  which  road  will  be  the  most  eco- 
nomical when  the  current  rate  of  interest  is  two  per 
cent?     When  it  is  four  per  cent?     Five  per  cent? 
Six  per  cent?    Ten  per  cent? — (P.) 


XVIII. 
DISTRIBUTION :  PROFITS. 

266.  "Competitive  profits  (or  losses)  arise  in  con- 
sequence   of    deviations    of    market    from    normal 
prices.55 — SEAGER,  p.  198.    Give  several  illustrations. 

267.  Give  several  reasons  why  the  profits  of  en- 
terprisers are  higher  during1  a  period  of  rising  prices 
than  during  a  period  of  falling  prices.     Illustrate 
from  our  experience  during  and  following  the  Great 
War. 

268.  a.  Give  an  illustration,  preferably  from  your 
own  experience,  of  an  enterpriser's  receiving  profits 
in  excess  of  the  amount  necessary  to  induce  him  to 
undertake  the  enterprise. 

6.  Of    an    enterpriser's    receiving    only    sufficient 
profits  to  induce  him  to  undertake  the  enterprise. 

269.  Are  competitive  profits  in  the  flour  industry 
less  because  of  trading  in  wheat  futures?     Because 
of  insurance?     Explain. 

270.  We  often  hear  people  complain  of  what  they 
consider  the  unreasonable  profits   of  druggists   or 

80 


DISTRIBUTION:     PROFITS  81 

other  merchants,  saying  that  these  dealers  clear  from 
fifty  to  a  hundred  per  cent  on  a  large  part  of  their 
sales,  while  they  have  no  right  to  more  than  eight  or 
ten  per  cent.  Does  the  fact  that  fifty  or  a  hundred 
per  cent  are  cleared  on  sales  prove  that  a  merchant 
gets  more  than  eight  or  ten  per  cent  real  profit? 

271.  "Under  free  competition  the  consumer  gets 
the  benefit  of  all  improvement  in  method,  yet  pro- 
ducers ar*  always  anxious  to  take  up  new  methods." 
Explain  and  illustrate  each  part  of  this  statement. 

-(T.) 

272.  "Profits  from  a  corporate  enterprise  may  be 
concealed  by  watering  the  stock."    Explain. 

273.  a.  Would  there  be  risks  in  production  under 
government  ownership  of  industry?    If  so,  would  this 
be  entered  as  a  cost  in  the  books  of  the  state? 

6.  Would  profits  exist  in  such  a  state? 

274.  Suppose   that    by    the    draining   of    swamp 
lands,  one-fifth  should  be  added  to  the  tillable  soil 
of  the  country.     What  effect  would  it  tend  to  have 
on  wages?     On  profits?     On  interest?     On  agricul- 
tural rent?    Explain  in  each  case. — T. 


XIX. 

MONEY. 

A.  THE  NATURE  OF  MONEY, 

275.  What  is  money?    Why  have  money?     Is  an 
individual  better  off  economically  when  he  exchanges 
goods  for  money? 

276.  "A  nation  is  so  much  poorer  by  every  dollar 
it  sends  out,  just  as  an  individual  is  so  much  poorer 
by  every  dollar  he  spends."     Criticise  both  clauses. 
-(T.) 

277.  "Foreign    trade    can    add    to   the   national 
wealth  only  when  it  brings  in  a  money  balance." 

a.  What  is  the  principal  thing  to  be  gained  by 
maintaining  trade  relations  with  the  outside  world? 

6.  When  would  it  be  of  advantage  to  have  our 
foreign  trade  bring  in  a  money  balance? 

c.  What  idea  does  the  person  quoted  appear  to 
have  as  to  the  relative  values  of  economic  goods? — 
(T.) 

278.  "I  don't  see  that  society  as  a  whole  loses  any- 

82 


MONEY  83 

thing  by  the  giving  of  a  fireworks  exhibition  costing 
$1,000.  Of  course,  the  people  who  pay  for  the  fire- 
works are  just  so  much  out.  But  then  the  $1,000 
goes  to  the  other  people  who  furnish  the  fireworks; 
so  that  society  as  a  whole  comes  out  even."  Criti- 
cise.— T. 

279.  "The  only  justification  I  can  see  for  the  lux- 
urious expenditure  of  the  idle  rich  is  that  money  is 
put  in  circulation — other  folks  have  a  chance  to  get 
hold   of  the  idle  hoard." — A  university  professor. 
Discuss  the  issue  raised. 

280.  "The  Russian  Government  is  expending  $12,- 
000,000  a   year  on   new  aeroplanes,   and   although 
these  may  never  be  needed  in  war,  the  money  will  not 
be  wholly  wasted,  for  all  the  machinery  is  to  be  de- 
signed and  constructed  in  Russia." — Editorial,  The 
Independent ,  April  13,  1914.     Discuss  the  economic 
principle  involved. 

281.  "That  proportion  of  the  money  received  from 
the  bonds  (sold  by  European  governments  to  finance 
the  present  war) ,  which  is  spent  in  the  home  country, 
is  not  all  wasted,  but  there  is  no  getting  back  the 
money  which  is  spent  in  the  United  States  or  other 
lands.     For  this  reason,  Germany  is  in  better  finan- 
cial condition  to-day  than  any  of  the  other  belliger- 
ents.   Her  dealing  has  all  been  among  her  own  peo- 


84,  MONEY 

pie." — ROGER  W.  BABSON,  in  Daily  News,  August 
1,  1915. 

a.  Did  the  allies  follow  a  sound  policy  in  buying 
goods  and  ammunition  in  the  United  States?     Did 
Babson  imply  that  they  were  wise  or  foolish  in  doing 
so? 

b.  Need  the  allies  get  back  the  money  which  they 
spent  in  the  United  States  in  order  not  to  lose? 

c.  State  in  other  than  monetary  terms  the  eco- 
nomic cost  of  war. 

282.  "Money  spent  at  home  for  goods  is  used  over 
and  over  again  and  benefits  many,  but  money  spent 
in  the  Chicago  Mail  Order  Houses  benefits  none  of 
us  but  the  buyer." 

a.  Is  $75  spent  for  china  in  Minneapolis  used 
"over  and  over  again"  in  Minneapolis?  Explain. 

6.  May  it  be  economically  advisable  for  the  in- 
habitants of  Minneapolis  to  buy  in  Chicago?  Ex- 
plain. 

c.  Might  such  a  policy  affect  the  population  of 
Minneapolis  numerically?  If  a  reduction  in  popula- 
tion should  ensue,  what  persons  would  lose  by  the 
change? 

283.  A  resident  of  Mankato,  Minnesota,  plans  to 
spend  $300  for  a  supply  of  clothing  for  his  family. 

a.  Estimate  the  monetary  gain  to  Mankato  from 


MONEY  85 

having  the  money  spent  there.  Specify  in  detail  the 
probable  division  of  the  sum  gained  among  the  vari- 
ous persons  in  Mankato  who  may  be  expected  to 
share  in  the  gain. 

6.  Make  similar  estimates,  supposing  the  money 
to  be  spent  in  Minneapolis. 

c.  Compare  the  advisability  of  this  individual's 
trading  in  the  one  place  or  the  other,  (1)  if  he  is  a 
retired  business  man  receiving  his  income  from  east- 
ern corporations;  or  (2)  if  he  is  a  practising  phy- 
sician who  owns  several  residences  in  Mankato. 

284.  The  functions  of  serving  as  a  medium  of  ex- 
change and  as  a  measure  of  value  "are  not  two  dif- 
ferent functions,  but  merely  two  different  aspects  of 
the  same  thing." — ELY,  Outlines  of  Economics,  p. 
252.    Do  you  agree?    Explain. 

B.  MONETARY  SYSTEM. 

285.  What  is  our  standard  money?     Who  deter- 
mines what  our  standard  money  shall  be?     Has  it 
always  been  as  it  is  now? 

286.  Why  is  gold  well  suited  to  serve  as  money? 
In  what  way,  if  any,  are  each  of  the  following  com- 
modities inferior  to  gold  as  a  monetary  medium: 
wheat,  cotton,  diamonds,  iron,  copper,  silver? 

287.  "The  coinage  of  money  has  almost  univer- 


86  MONEY 

sally    been     regarded     as     a    prerogative    of    the 
sovereign."     Why? 

288.  "Free     (unrestricted)     coinage    and    unre- 
stricted  melting   keep   23.22    grains   of   pure   gold 
worth  $1."     Explain.     Are  both  free  coinage  and 
free  melting  necessary  to  maintain  the  parity  of  the 
standard  money? 

289.  a.  If  an  ounce  of  gold  is  worth  thirty-two 
times  as  much  as  an  ounce  of  silver,  and  if  the  gov- 
ernment  should   decree   that  both   gold    and   silver 
should  be  standard  money,  and  that  there  should  be 
371.25  grains  of  silver  in  a  silver  dollar  and  23.22 
grains  of  gold  in  a  gold  dollar  (bimetallism  at  the 
ratio  of  16: 1),  in  what  money  would  debts  be  paid? 
Why?     Which  money  would  be  overrated?     Which 
money  would  become  the  standard?    What  would  be- 
come of  the  other  money? 

fe.  At  what  ratio  could  both  silver  and  gold  be 
maintained  as  standard  money  under  the  above  con- 
ditions? Could  we  be  certain  that  this  ratio  would 
be  the  proper  one  next  year? 

290.  What  is  Gresham's  Law?    Why  does  not  our 
silver  dollar,  worth  about  fifty  cents,  replace  gold  as 
standard  money? 

291.  "Token  money  should  be  light  in  weight." 
a.  What  is  token  money?, 


MONEY  87 

6.  What  is  meant  by  its  being  light  in  weight? 
Why  is  this  necessary? 

c.  The  Congress  of  the  United  States  passed  a 
law  in  1853  providing  that  the  amount  of  silver  in 
the  fractional  silver  coins  should  be  reduced.  Why 
do  you  suppose  Congress  made  this  provision? 

292.  "Gold  is  a  commodity  like  all  other  economic 
goods,  and  its  exchange  value  is  determined  accord- 
ing to  the  principle  that  controls  the  exchange  value 
of  other  goods.  Its  value  rises  when  the  gold  supply 
is  relatively  small,  and  vice  versa." 

a.  When  gold  is  discovered,  what  evidence  do  we 
have  of  change  in  the  value  of  gold  in  the  vicinity  of 
the  "strike"? 

b.  How  can  we  ascertain  whether  gold  is  rising  or 
falling  in  value? 

c.  If  gold  falls  in  value,  what  effect  does  this  have 
on  creditors?     On  debtors?    On  receivers  of  fixed  in- 
comes?    On  receivers  of  incomes  which  change  less 
rapidly  than  other  incomes? 

293.  "A  multiple  standard  would  prevent  the  in- 
jury that  inevitably  results  from  a  money  standard." 
Explain  what  is  meant  by  a  multiple  standard,  and 
argue  for  the  truth  of  this  statement. 

294.  "It  has  been  estimated  that  the  use  of  green- 
backs increased  the  expense  of  the  Civil  War  by 


88  MONEY 

nearly  $600,000,000." — ELY,  Outlines  of  Economics, 
p.  278.  Account  for  this  increase  in  the  expense  of 
the  war  due  to  the  use  of  greenbacks. 

295,  "A  Soviet  journal  published  in  Moscow  in  a 
recent  review  of  the  monetary  situation  in  Russia 
states  that  at  the  beginning  of  the  war  the  amount 
of  paper  roubles  outstanding  was  1,630,000,000;  by 
the  end  of  1917  it  had  reached  27,300,000,000,  at 
the  end  of  1919,  225,000,000,000  and  at  the  end  of 
1920,  1,168,000,000,000.  The  statement  goes  on  to 
say  that  at  the  date  of  writing,  October,  1921, 
prices  in  Moscow  were  48,600  times  higher  than  in 
1914,  and  the  editor  argued  that,  on  this  basis,  the 
present  monetary  circulation  was  insufficient.  He 
calculated  the  country's  present  needs  for  currency 
at  48,500,000,000,000  roubles." — Bulletin  of  Na- 
tional City  Bank,  January,  1922,  p.  11.  Account 
for  this  great  increase  in  the  amount  of  money.  If 
a  nation  begins  to  issue  irredeemable  paper  money,  is 
there  danger  of  a  great  over  issue?  Discuss. 


XX. 

CREDIT  AND  BANKING. 
A.  BANK  CREDIT. 

296.  "Credit  economizes  the  use  of  money."    Ex- 
plain what  is  meant. 

297.  "With  $100  cash  a  bank  can  furnish  $800  of 
exchange  media." 

a.  Just  how  can  a  bank  do  this? 

b.  Why  is  it  safe  to  do  this? 

c.  Under  what   conditions    could   it   loan   a   still 
larger  amount  on  a  cash  reserve  of  $100? 

d.  Should  the  amount  which  may  be  loaned  in  this 
way  be  specified  by  law? 

e.  If  a  bank  holds  a  large  quantity  of  high-grade 
bonds,  may  it  more  safely  keep  a  small  reserve  than 
if  it  has,  instead,  invested  a  similar  amount  in  farm 
mortgages  ?    Explain. 

298.  What  is  a  check?    Why  do  most  persons  pre- 
fer to  use  checks  in  exchange  transactions?     Is  it 
economically  advisable  that  checks  be  used? 

299.  If  a  resident  of  Davenport,  Iowa,  sends  a 

89 


90  CREDIT  AND  BANKING 

check  for  $20  to  a  dealer  in  St.  Paul,  the  dealer  will 
write  his  name  across  the  back  of  the  check  and  cash 
it  at  his  bank. 

a.  Why  will  he  write  his  name  upon  the  check? 
How  will  the  St.  Paul  bank  reimburse  itself  for  the 
$20  given  to  the  dealer? 

6.  Suggest  the  probable  route  that  the  check 
would  take  in  returning  to  the  person  in  Davenport 
who  drew  it. 

300.  A.  B.,  of  St.  Louis,  buys  $1,275  worth  of 
flour  from  X.  Y.,  of  Minneapolis. 

a.  Suppose  settlement  to  be  effected  with  a  wheat 
bill  of  exchange  (also  called  a  sight  draft),  and  write ^ 
out  the  substance  of  the  bill  which  would  be  used. 

b.  Suppose  settlement  to  be  made  with  a  check, 
and  write  out  a  facsimile  (in  substance). 

c.  Suppose  settlement  to  be  made  with  a  bank 
draft,  and  write  out  a  facsimile  (in  substance). 

d.  Describe  the  imaginary  course  which  each  of 
these  instruments  would  take. — (T.) 

301.  Many  deposits  are  due  not  to  the  deposit  of 
money  but  to  the  borrowing  of  bank  credit.  Explain. 

302.  The  per  capita   amount   of  money,   of  all 
kinds,  in  circulation  in  the  United  States  in  1913 
was  about  $35,  yet  the  deposits  per  capita  in  sav- 
ings banks,  July  1,  1913,  were  $48.57.     How  can 
this  be?— P. 


CREDIT  AND  BANKING  91 

303.  "Commercial  banking  stands  or  falls,  as  to 
its  social  utility,  with  the  merits  or  demerits  of  the 
business    man's    doings." — TAUSSIG,    Principles    of 
Economics,  vol.  1,  p.  353.     Show  that  this  is  true. 

B.  BANK  NOTE  ISSUE. 

304.  A  customer  gives  his  note  and  opens  a  check- 
ing account. 

a.  Show  that  if  the  bank  should,  instead  of  giving 
him  a  checking  account,  issue  him  due  bills  upon  it 
(bank  notes),  the  banking  principle  involved  would 
be  similar  to  that  involved  in  a  checking  transaction. 

b.  In  what  way  would  the  bank's  notes  be  superior 
to  checks  as  media  of  exchange? 

c.  What  element  of  danger  is  involved  in  allowing 
banks  to  issue  their  own  notes? 

d.  Should  we  impose  reserve  requirements  in  re- 
gard to  notes?     Why? 

305.  "The  issuance  of  bank  notes  is  far  more  im- 
portant in  a  community  not  accustomed  to  the  use  of 
checks,  as  rural  districts,  than  in  communities  accus- 
tomed to  the  use  of  checks,  as  cities."    Why  is  this 
true? 

306.  Country  districts  need  more  money  during 
the  crop-moving  season  than  at  any  other  time  in 
the  year. 


92  CREDIT  AND  BANKING 

a.  Show  just  why  it  is  that  an  extra  amount  of 
money  is  needed  at  that  time. 

b.  Would  it  be  advantageous   if  the  farm   com- 
munities could,   through   their  banks,  manufacture 
their  own  money?    How  could  this  be  done? 

c.  If  they  cannot  provide  their  own  money,  how 
can  they  get  the  needed  amount  ? 

d.  Trace  the  movement  of  this  extra  money  from 
the  time  it  leaves  the  banks  in  the  farm  community 
until  it  returns  to  the  regular  channels. 

307.  From  the  time  of  the  civil  war  until  recently, 
banks   could  issue  notes  only  upon  United   States 
government  bonds. 

a.  Point  out  one  advantage  of  such  a  system. 

6.  What  must  have  been  the  chief  disadvantage  of 
the  system? 

c.  Is  there  any  significance  in  the  fact  that  there 
was  a  financial  panic  in  1907,  and  that  this  note-issue 
provision  was  temporarily  amended  at  the  session  of 
Congress  next  following,  in  1908,  making  it  possible 
to  issue  bank  notes  upon  collateral  other  than  United 
States  bonds  ? 

308.  "If  banks  can  issue  their  own  notes  when 
called  for  at  the  counter,  we  can  always  have  all  the 
circulating  medium  we  need.     When  trade  is  taking 
place,  securities  will  be  abundant  and  can  be  used  as 
security  for  notes,  and  when  trade  abates  the  notes 


CREDIT  AND  BANKING  93 

will  be  deposited  in  the  banks,  returned  to  the  issuing 
banks  and  be  canceled  and  retired." 

a.  Do  you  believe  such  a  system  of  note-issue  to 
be  proper? 

b.  Would  it  be  well  to  limit  this  function  to  cer- 
tain banks? 

c.  What  advantage  might  accrue  from  prohibiting 
banks  paying  out  the  notes  of  other  banks? 

d.  In  what  way  is  our  Federal  Reserve  Banking 
System  analogous  to  the  system  here  suggested  ? 

309.  What  is  the  significance  of  the  provision  al- 
lowing the  Federal  Reserve  Board  to  suspend  the 
40%   reserve  requirement  for  federal  reserve  notes 
and  at  the  same  time  impose  a  tax  upon  the  deficiency 
in  the  reserve? 

310.  Describe  and  illustrate  the  process  by  which 
(1)   a  commercial  transaction  gives  rise  to  30-day 
commercial  paper;  (2)   this  paper  comes  into  the 
possession  of  a  national  bank;  (3)  this  bank  redis- 
counts the  paper  at  the  federal  reserve  bank;  (4) 
the  federal  reserve  bank  sends  federal  reserve  notes 
to  the  national  bank  in  payment ;  (5)  the  commercial 
paper  is  taken  up  (paid)  when  due. 

C.  THE  CLEARING  HOUSE. 

311.  October  1,  1907,  the  different  banks  of  Ann 


94  CREDIT  AND  BANKING 

Arbor  brought  to  the  clearing  claims  against  each  of 
the  other  banks  as  follows : 


No.  1  against 
No.  2,  $2,213.19 
No.  3,     1,865.09 
No.  4,    2,415.96 
No.  5,       512.21 

No.  2  against 
No.  1,  $4,284.78 
No.  3,    2,172.45 
No.  4,    3,043.18 
No.  5,       655.87 

No.   3   against 
No.  1,  $4,974.66 
No.  2,     1,607.79 
No.  4,     1,093.24 
No.  5,       625.88 

Total   $7,006.45         Total  $10,156.28         Total  $8,301.57 

No.  4  against  No.  5  against 

No.  1,  $3,078.73  No.  1,  $   332.15 

No.  2,     1,793.16  No.  2,       377.17 

No.  3,        973.73  No.  8,     1,515.46 

No.  5,     4,633.96  No.  4,        181.56 


Total  $10,479.58  Total    $2,406.34 

a.  Compute  the  balance  for  or  against  each  bank. 

b.  How  much  money  was  needed  at  the  clearing 
house  that  day? 

c.  How  can  you  account  for  the  condition  shown 
by  bank  No.  5,  namely,  that  bank  No.  4  cashed  so 
many  checks  drawn  upon  this  bank,  while  the  other 
banks  cashed  so  few,  and  that  it  cashed  but  few  for 
any  of  the  other  banks?    From  this  showing,  is  bank 
No.  5  necessarily  the  smallest  of  the  five  banks? 

d.  If  there  are  only  two  banks  in  a  town,  how  do 
they  "clear"? 

e.  Show  concretely  the  saving  that  results  from 
the  clearing  house  in  this  town  of  five  banks. 

f.  State  definitely   the   primary   function   of  the 
clearing  house. 


CREDIT  AND  BANKING  95 

g.  Is  the  amount  of  bank  clearings  a  fair  index  of 
the  prosperity  of  a  community?     Explain. — (T.) 

312.  If  a  resident  of  Peoria  sends  a  check  to  a 
dealer  in  Chicago,  the  check  may  or  may  not  go 
through  the  clearing  house  in  Peoria.    Explain. 

D.  THE  BANK  STATEMENT. 

313.  A    bank    statement    shows    the    marketable 
property  of  the  bank  under  the  caption,  assets,  or 
resources,  and  the  liabilities  of  the  bank  to  the  stock- 
holders, or  owners,  and  to  the  depositors,  or  custom- 
ers, under  the  caption,  liabilities. 

a.  Why  do  banks  issue  statements? 
6.  The  assets   and  liabilities  are  always  exactly 
equal.    How  do  you  account  for  this  ? 

c.  If  the  assets  and  liabilities  are  always  equal, 
how  can  the  statement  indicate  the  strength  of  the 
bank? 

d.  Are  the  following  resources  or  liabilities  ( if  lia- 
bilities, are  they  to  the  stockholders  or  to  the  de- 
positors) :  capital  stock,  cash,  due  from  other  banks, 
overdrafts,    circulation,    undivided    profits,    U.    S. 
bonds,  surplus,  deposits,  loans  and  discounts? 

314.  If  men  in  organizing  a  bank  put  in  $20,000 
in  gold,   the  statement  will  then   stand:  Assets, — 
cash,  $20,000  ;  liabilities, — capital  stock,  $20,000. 


96  CREDIT  AND  BANKING 

a.  How  will  the  statement  be  affected  if  $10,000 
is  spent  for  a  site  and  building? 

b.  If  X.  deposits  $200  in  gold? 

c.  If  Y.  cashes  a  $50  check  drawn  by  X.? 

d.  If  Z.  opens  an  account  by  depositing  a  $100 
check  written  by  X.  ? 

e.  If  Z.,  wishing  to  borrow,  gives  his  note  for  $300 
to  the  bank  and  has  this  amount,  less  $2.45  interest, 
credited  to  his  deposit  account  ? 

/.  If  the  bank  spends  $1,000  for  bonds? 
g.  If  the  bonds  are  later  sold  for  $1,100? 
h.  If  Z.  pays  his  note  at  maturity? 

315.  "The  total  loans  and  investments  of  report- 
ing member  banks  of  the  Federal  Reserve  Banking 
System  declined  from  $16,581,545,000  on  Dec.  10, 
1920,  to  $14,758,750,000  on  Dec.  7, 1921,  while  their 
net  demand  deposits  declined  from  $10,865,474,000 
to  $10,208,340,000." — Commerce  Monthly,  Jan., 
1922,  p.  19.  Account  for  the  difference  in  the  fall- 
ing off  in  these  two  items. 


XXI. 
FOREIGN  EXCHANGE. 

316.  Par  of  exchange  on  London  is  $4.866.    How 
is  this  figure  derived? 

317.  Suppose  that  X.  in  New  York  sells  A.  in 
Liverpool  a  cargo  of  cotton  for  £1,000,  and  that  B. 
in  Liverpool  sell  I.  in  New  York  a  quantity  of  steel 
for  £1,000. 

a.  How  can  these  bills  be  most  easily  paid  ? 

b.  Why  would  it  be  unwise  for  A.  to  ship  £1,000 
in  gold  to  X.  and  for  I.  to  ship  a  similar  amount 
to  B? 

c.  I.  owes  B.  £1,000,  or  $4,866.66.     If  it  costs 
three  cents  to  ship  £1  to  England,  how  much  would 
I.  be  willing  to  pay  X.   for  his  claim  on  A.  with 
which  to  pay  B.,  rather  than  ship  gold  to  B.? 

d.  For  how  much  per  pound  would  X.  be  willing 
to  sell  his  claim  rather  than  have  the  gold  shipped 
to  him  at  his  expense? 

e.  If  other  persons  have  also  sold  abroad  and  pos- 
sess claims  on  Englishmen,  they  will  compete  with  X. 
to  sell  English  credit  to  I.    What  effect  will  this  have 
on  the  price  per  pound  that  importers  must  pay  for 

97 


98  FOREIGN  EXCHANGE 

English  credit  with  which  they  may  discharge  their 
obligations?  How  low  can  this  normally  go?  Why? 

/.  If  other  persons  have  also  bought  abroad,  they 
will  compete  with  I.  in  buying  X.'s  claim.  This  will 
have  what  effect  on  the  price  that  exporters  can  get 
for  their  bills?  How  high  can  this  normally  go? 
Why? 

g.  What  is  the  high  "gold  point"?  The  low  "gold 
point"? 

318.  If  you  are  in  country  A  and  desire  ten  ounces 
of  gold  in  a  distant  country  B,  under  what  condi- 
tions could  you  buy  in  A,  the  right  to  this  much 
gold  in  B,  for  less  than  ten  ounces  of  gold?     Under 
what  conditions  would  you  have  to  give  more  than 
ten  ounces?    Under  what  conditions  would  the  pric£ 
be  just  ten  ounces? 

319.  What  is  the  fundamental  reason  for  the  rate 
of  exchange  between  two  gold  standard  countries  ever 
being  other  than  par?     If  the  Atlantic  Ocean  were 
a  narrow  river,  would  the  rate  of  exchange  on  Lon- 
don normally  vary  more,  or  less,  from  par  than  it 
does  now? 

320.  If  London  credit  is  selling  in  New  York  for 
$4.89  per  £,  should  you  expect  London  banks  to  pay 
more  or  less  than  face  value  for  drafts  on  New  York 
banks?    To  charge  more  or  less  than  face  value  for 
drafts  payable  in  New  York?     Explain. 


FOREIGN  EXCHANGE  99 

321.  American  exporters  do  not  sell  their  claims 
on  their  foreign  customers  directly  to  American  im- 
porters :  they  sell  to  middlemen.    Who  are  the  middle- 
men?    Does  the  middleman  sell  the  piece  of  paper 
which  he  receives  from  the  American  exporter  to  the 
American  importer,  or  does  he  give  the  American  im- 
porter another  piece  of  paper?     If  the  latter,  what 
does  he  do  with  the  paper  that  he  buys  from  the 
exporter? 

322.  If   a  New  York   exchange  broker  has   ex- 
hausted his  London  balance,  and  is  unable  to  buy 
American  exporters'  claims,  what  must  he  do  to  re- 
plenish his  balance  so  that  he  can  sell  drafts  to 
American   importers?      Then   what   price   must   he 
charge  importers  for  his  drafts?     Explain. 

323.  a.  If  you  are  a  wheat  exporter  and  have  sold 
a  shipment  for  £1,000,  what  can  you  realize  on  your 
claim  if  exchange  is  $4.84?    If  exchange  is  $4.87? 

b.  Suppose  you  are  an  importer  and  have  bought 
merchandise  to  the  value  of  £1,120.     What  will  it 
cost  you  to  pay  your  debt  if  exchange  is  $4.84?    If 
exchange  is  $4.87? 

c.  What  principle  can  be  deduced  as  to  the  effect 
that  a  high  or  a  low  rate  of  exchange  tends  to  have 
on  exports?     On  imports? — (T.) 

324.  Consult  the  daily  papers  and  find  the  rate  of 


100  FOREIGN  EXCHANGE 

exchange  in  New  York  on  London  to-day ;  on  P'aris ; 
on  Berlin. 

325.  Excessive  exports  from  America  tend  to 
cause  a  ^  rate  of  exchange  on  London ;  but  this 
rate  of  exchange  tends  to  Decrease  exports  and 
decrease  ™ports,  and  thus  bring  the  rate  again  to 
normal.  Make  the  proper  erasures  and  write  a 
similar  statement,  beginning,  "Excessive  imports 


326.  Do  the  following  tend  to  raise  or  lower  the 
rate  of  exchange  in  New  York  on  London?    Explain. 

a.  European  travel  by  Americans? 

b.  American  travel  by  Europeans? 

c.  Borrowing  abroad  by  selling  American  securi- 
ties ? 

d.  Buying   of   postal   money    orders    to   be   sent 
abroad  ? 

327.  "A  country  that  produces  gold  tends  to  ex- 
port more  gold  than  it  imports."     Show  how  the 
production  of  gold  in  the  United  States  would  lead 
to  a  rate  of  exchange  that  would  make  the  sending 
of  gold  profitable. 

328.  "Movements  of  gold  as  a  result  of  a  high  or 
low  rate  of  exchange  tend  to  be  self-corrective." 
Explain. 


FOREIGN  EXCHANGE  101 

329.  "Fundamentally  the  rate  of  exchange  be- 
tween two  countries  depends'  aipon  whal.  a  l«niu  of 
the  money  of  one  country  will  buy  in  that  country  as 
compared  with  what  a  unit  of  the  money  of  the  other 
country  will  buy  in  that  other  country." 

a.  Does  this  seem  to  be  reasonable?     As  between 
two  gold  standard  countries,  should  you  expect  an 
ounce  of  gold  to  buy  approximately  as  much  in  one 
as  in  the  other?    Why?    If  so,  then  could  the  rate  of 
exchange  be  determined  approximately  by  comparing 
the  gold  content  of  the  monetary  units  of  the  two 
countries  ? 

b.  If  one  or  both  of  two  countries  are  not  on  the 
gold  standard,  how  will  the  rate  of  exchange  be  de- 
termined ?    Why  has  the  rate  of  German  exchange  in 
New  York  declined  as  the  amount  of  paper  money  in 
Germany  has  increased? 

c.  The  German  price  level  was  given  as  3467  on 
January  4,  1922,  the  average  for  the  middle  of  1914 
being  taken  as  100.    If  our  price  level  was  150  then, 
on  the  basis  of  1914,  what  should  you  expect  a  mark 
to  have  been  worth  in  New  York?    Explain. 

d.  "The  principle  stated  above  presupposes  free- 
dom from  abnormal  restrictions  of  trade  and  the  ab- 
sence of  radical  changes  in  tariff  policies,  and  recog- 
nizes   that    temporary    fluctuations    may    occur    in 
response  to   seasonal  and  psychological   influences. 
It  should  also  be  added  that  the  cost  of  transporta- 
tion must  be  allowed  for  and  that  certain  variations 


102  FOREIGN  EXCHANGE 

of  the  general  pcrjce.  level  from  the  prices  of  goods 
entering  into  intertiational  trade  must  be  taken  into 
account." — CHANDLER,  Commerce  Monthly,  May, 
1921,  p.  6.  Explain  the  influence  of  each  of  these 
factors  on  the  actual  market  rate  of  exchange. 

330.  "Sterling  exchange  in  New  York  during  the 
war  was  generally  maintained  at  a  very  slight  dis- 
count below  par,  and  from  the  end  of  1916  to  March 
20, 1919,  was  maintained  at  a  discount  of  only  about 
two  per  cent,  .  .  .  despite  the  restrictions  on  ship- 
ments of  gold  from  London,  despite  the  virtual  sus- 
pension of  gold  payments  in  London,  and  despite  the 
gigantic  adverse  trade  balance  of  Great  Britain. 
.  .  .  The  British  Government  was  using  its  credit 
for  borrowing  in  New  York  and  was  using  the  pro- 
ceeds of  its  borrowing  to  protect  sterling  exchange. 
.  .  .  Through  much  of  1916  and  down  to  the  entry 
of  the  United  States  into  the  war  in  1917,  the  bank- 
ing house  acting  for  the  British  Government  in  the 
United  States  was  purchasing  in  the  New  York 
market  sterling  exchange  in  an  amount  averaging 
$10,000,000  per  day.  .  .  .  With  the  entrance  of 
the  United  States  into  the  war  many  billions  of  dol- 
lars were  placed  at  the  disposal  of  the  British  Gov- 
ernment and  were  used  both  for  new  purchases  and 
for  the  protection  of  sterling  exchange." — ANDER- 
SON, TJie  Chase  Economic  Bulletin,  January,  1922, 
p.  14. 

a.  Show  why  the  conditions  mentioned  at  the  close 


FOREIGN  EXCHANGE  103 

of  the  first  sentence  should  have  been  expected  to 
reduce  the  rate  of  exchange  on  London. 

b.  Explain  just  how  sterling  exchange  was  pro- 
tec  ted.  Could  the  word  purchase  be  properly  sub- 
stituted for  the  word  protect  in  this  quotation? 


XXII. 
FOREIGN  TRADE  AND  THE  TARIFF. 

A.  THE  THEORY  OF  FREE  TRADE. 

331.  "Domestic  trade  cannot  increase  the  wealth 
of  the  nation.    It  is  only  by  foreign  trade,  and  then 
only  by  getting  more  than  is  given,  that  a  nation 
can  enrich  itself."    Discuss. — (T.) 

332.  Country  A  can  produce  pig  iron  at  a  cost  of 
ten  days'  labor  per  ton  and  broadcloth  at  a  cost  of 
five  days'  labor  per  yard.     Country  B  can  produce 
the  iron  at  a  cost  of  fifteen  days'  labor  and  the  cloth 
at  a  cost  of  six  days'  labor.    The  comparative  costs 
of  the  two  articles  in  each  of  these  countries  is,  then, 
as  follows :     Country  A,  one  ton  equals  two  yards ; 
Country  B,  one  ton  equals  two  and  one-half  yards. 

a.  Prove  in  detail  that  if  transportation  and  all 
costs  other  than  labor  be  ignored,  exchange  of  these 
products  between  A  and  B  will  pay. 

b.  Is  such  exchange  in  line  with  social  economy? 

c.  Which  country  is  the  more  efficient  in  produc- 
ing iron?     In  producing  cloth? — (T.) 

104 


FOREIGN  TRADE  AND  THE  TARIFF     105 

333.  Country  X  can  produce  wheat  at  cost  of  one- 
half  day's  labor  per  bushel  and  knives  at  a  cost  of  one 
and  one-half  days'  labor  per  dozen ;  Country  Y  can 
produce  the  wheat  at  a  cost  of  one  day's  labor  and 
the  knives  at  a  cost  of  two  days'  labor.    Which  coun- 
try is  the  more  efficient  in  producing  wheat?     In 
producing  knives?     Will  exchange  pay?     Prove  in 
detail. 

334.  Prove  that  exchange  will  not  pay  if  compara- 
tive costs  are  equal. 

335.  "We   know   that  England  can  make   ships 
more  cheaply  than  we  can,  and  so  we  should  let  her 
do  the  shipbuilding  and  turn  our  capital  to  such 
things  as  we  can  do  better  than  she  can."    Assuming 
the  conclusion — that  we  should  let  England  build 
the  ships — to  be  sound,  show  from  the  principle  in- 
volved in  problems  332   and  333,  that  the  reason 
given  is  not  satisfactory. 

336.  "The  great  advantage  of  foreign  trade  is  in 
furnishing  a  market  for  our  surplus  products  which 
would  otherwise  go  to  waste."    Why  do  we  produce 
more  of  certain  kinds  of  goods  than  we  care  to  con- 
sume?   Are  these  "surplus"  products?    Is  a  farmer's 
corn  crop  a  surplus  to  him?    Discuss. 

337.  "It  will  never  pay  us   to  import  anything 


106    FOREIGN  TRADE  AND  THE  TARIFF 

which  we  ourselves  can  produce."     Show  that  this 
proposition  is  erroneous. 

338.  "If  we  buy  rails  from  England,  we  get  the 
rails,  of  course,  but  they  get  our  money ;  while,  if  we 
buy  rails  at  home,  we  have  the  rails  and  the  money 
too." — A  statement  falsely  credited  to  Lincoln. 

a.  Is  there  any  reason  to  expect  that  our  buying 
rails  in  England  would  carry  off  our  regular  stock 
of  money?     Explain. 

b.  Should  we  regret  such  trading  because  it  de- 
creases our  stock  of  money,  if  that  should  result? 

c.  Substitute  "cotton"  for  "money,"  throughout 
the  above  quotation,  and  show  the  fallaciousness  of 
the  doctrine. — (T.) 

B.  THE  THEORY  OF  PROTECTION. 

339.  What  is  a  tariff  for  revenue  only?     A  tariff 
for  protection?    What  general  class  of  goods  would 
bear  a  duty  in  the  one  case?    In  the  other? 

340.  a.  What  is  the  "infant  industry"  argument? 

b.  Is  it  economically  sound? 

c.  This  argument  implies  that  tariffs  should  be 
maintained  for  how  long  a  period  of  time? 

d.  Is   "infant  industry"   protection  likely  to  be 
permanent?     Discuss. 

341.  "Though  injurious  economically,  a  protec- 


FOREIGN  TRADE  AND  THE  TARIFF    107 

tive  tariff  may  be  justifiable  politically  if  there  is 
sufficient  likelihood  of  war." 

a.  Give  the  supporting  argument. 

b.  Cite  historic  illustrations   in   support   of   this 
position. 

342.  "Germany,  with  a  tariff  policy,  has  had  the 
advantage  of  free-trade  England  in  securing  tariff 
concessions  in  foreign  countries."     Explain.     Does 
this    furnish   an    argument   in   favor   of   protective 
tariffs? 

343.  "A  protective  tariff  works  towards  national 
efficiency,  for  it  takes  wealth  from  those  who  are 
less  capable  and  puts  it  into  the  hands  of  those  who 
are  more  capable."     Show  that  a  protective  tariff 
may  have  this  result.     Do  you  consider  this  a  valid 
argument  in  favor  of  protection? 

344.  a.  Why  are  custom  duties  a  popular  means 
of  getting  revenue? 

b.  How  can  they  be  used  to  secure  revenue  with- 
out furnishing  protection  ?  How  is  this  done  in  Eng- 
land? 

C.  THE  RELATION  OF  GOODS  EXPORTED  TO  GOODS 
IMPORTED. 

345.  "Farmer  Jones  went  in  debt  last  year  for 
$4,000  worth  of  machinery,  tile,  fertilizer,  and  other 


108    FOREIGN  TRADE  AND  THE  TARIFF 

equipment  for  his  new  farm,  but  sold  only  $2,000 
worth  of  produce." 

a.  Is  Jones  following  a  foolish  policy? 

b.  Part  of  his  crop  during  the  ensuing1  years  must 
be  used  for  what  purpose? 

c.  Compare  his  exports  and  imports  for  the  first 
year  mentioned ;  for  the  years  immediately  following. 

d.  If  Jones  later  loans  money  to  his  neighbors, 
how  will  the  exports  and  imports  of  his  farm  com- 
pare during  the  years  he  makes  these  loans? 

e.  How  will  they  compare  if  he  then  decides  to 
"live  better," — not  to  loan  out  so  much  money  each 
year? 

f.  What  similarity  is  there  between  this  case  and 
our  relation  thus  far  with  Europe? 

346.  a.  What  should  you  expect  to  be  the  relation 
between  the  goods  exported  and  the  goods  imported 
of   a   country   during  the   following  periods:      (1) 
When  it  is  first  open  to  settlement  or  to  industrial 
enterprise;  (2)  when  it  has  become  quite  well  sup- 
plied  with   imported   capital   goods;    (3)    when   its 
citizens  begin  to  make  investments  in  other  countries  ; 
and    (4)    when   a   relatively   large   amount   of   such 
foreign  investments  have  been  made? 

6.  In  which  of  these  stages  is  the  United  States? 
England  ?     Mexico  ? 

347.  Will  the  following  tend  to  increase  our  ex- 
ports of  goods  or  our  imports  of  goods:     Explain. 

a.  Foreign  travel  by  Americans? 


FOREIGN  TRADE  AND  THE  TARIFF    109 

b.  Travel  in  America  by  foreigners? 

c.  Transportation  of  American  exports  in  foreign 
ships  ? 

d.  Borrowing  of  European  capital? 

e.  Interest  payments  on  capital  borrowed? 
/.  Payment  of  capital  borrowed? 

g.  Loaning  of  capital  abroad? 

h.  Receiving  interest  from  abroad? 

i.  Insuring  in  foreign  insurance  companies? 

j.  Maintenance  of  American  ambassadors  abroad? 

k.  Supporting  foreign  missionaries? 

I.  Export  of  gold? 

m.  Sending  home  of  money  by  immigrants? 

348.  "A  favorable  trade  balance  is  an  excellent 
sign  of  vigorous  national  life,  and  of  a  sound  eco- 
nomic structure.    It  means  that  the  nation  is  taking 
in  more  than  it  is  paying  out." — STRAUS,  Investor's 
Magazine,  Dec.  1,  1914. 

a.  Do  you  agree  with  the  first  statement? 

b.  Illustrate  this  point  by  comparing  our  "favor- 
able,"   with   England's    "unfavorable,"   balance    of 
trade. 

c.  State  the  various  things  that  a  favorable  bal- 
ance of  trade  may  mean. 

349.  "The  true  way  to  quicken  foreign  demand 
(for  British  goods)  was  to  open  the  ports  to  that 
foreign  supply  with  which  they  paid  us  for  what  they 


110    FOREIGN  TRADE  AND  THE  TARIFF 

bought  from  us.'5 — MORLEY'S  Gladstone,  vol.  1,  p. 
267.     Show  that  the  above  is  sound  doctrine. — T. 

250.  Do  the  labor  and  capital  of  a  country  tend 
to  go  into  the  most  profitable  lives  of  industry?  If 
a  protective  tariff,  or  a  bounty  or  subsidy,  is  used 
to  divert  labor  and  capital  into  lines  of  industry  that 
they  would  not  otherwise  enter,  what  will  tend  to  be 
the  effect  upon  national  prosperity?  Is  it  always 
best,  for  the  nation,  to  have  business  men  devote 
themselves  to  the  work  at  which  they  can  make  the 
most  profit?  Is  it  generally  best?  Discuss — illus- 
trate. 

D.  THE  COST  OF  PROTECTION. 

351.  "Tariff  legislation  encourages  and  develops 
sectional  selfishness."     Explain. 

352.  "A  protective  tariff  fosters  political  corrup- 
tion."   How  can  this  be  true?    Has  protection  in  the 
United  States  had  this  result?     Explain  and  illus- 
trate. 

353.  "A  protective  tariff  tends  to  hasten  the  de- 
struction  of   our  natural   resources." — SEAGER,   p. 
402. 

"On  the  contrary,  free  trade,  by  stimulating  com- 
petition, makes  it  uneconomical  to  conserve  our  lum- 


FOREIGN  TRADE  AND  THE  TARIFF     111 

her,  for  example;  it  becomes  economical  to  cut  only 
the  largest  trees." 

Discuss  the  point  at  issue. 

354.  "The    protective    tariff    is    the    mother    of 
trusts."    Do  you  see  any  reason  for  this  view?    Ex- 
plain. 

355.  The  amount  added  to  a  price  by  a  tariff  duty 
does  not  represent  a  social  cost  if  the  good  will  be 
produced  without  the  tariff ;  but  it  does  represent  a 
social  cost  if  the  protective  duty  is  necessary  to  the 
production  of  the  good.        Show  that  this  is  true. 
Then  is  protection  less  objectionable  when  it  is  not 
needed?    What  is  the  objection  to  it  in  such  a  case? 

356.  "A  reduction  of  $60,000,000  in  tariff  duties 
means  a  reduction  in  the  burden  upon  the  people's 
consumption    of    approximately    $600,000,000."— 
SENATOR  NEWLANDS,  in  The  Independent,  73 :757. 
Explain.  / 

357.  "To  the  same  extent  that  the  home  market 
is  wrested  from  foreigners  and  given  to  protected 
home  producers,  the  foreign  market  is  wrested  from 
unprotected    home    producers."— SEAGER,    p.    403. 
Show  that  this  is  necessarily  true. — T. 


XXIII. 
MONOPOLY. 

358.  "The  monopoly  problem  is  one  of  the  most 
important  practical  questions  with  which  economics 
has  to  deal." — SEAGER,  p.  407.     Justify  this  state- 
ment. 

359.  What  conditions  warrant  the  establishment 
of  a  public  legal  monopoly?    Illustrate. 

360.  Give  an  example  of  a  private  legal  monopoly. 
Should  this  monopoly  have  been  given? 

361.  "If  a  patentee  does  not  make  use  of  his 
patent  it  should  be  revoked."    Do  you  agree?    Dis- 
cuss fully. 

362.  What  is  a  natural  monopoly  of  situation? 
A  capitalistic  monopoly?     Give  examples  of  each. 

363.  "Monopoly  is  more  economical  socially  than 
competition."     Explain  what  is  meant  and  discuss 
the  validity  of  the  statement.     If  the  statement  is 
true,  does  it  follow  that  we  should  encourage  monop- 
oly?   Explain. 

112 


MONOPOLY  113 

364.  "Monopoly  is  the  natural  product  of  indus- 
trial evolution."     Show  that  there  is  some  ground 
at  least  for  accepting  this  statement. 

365.  See  questions  on  monopoly  price  in  section 
VI. 

366.  Should  the  following  be  furnished  to  the  resi- 
dents of  a  city  by  a  company  having  a  monopoly,  or 
by  competing  companies :  water,  ice,  gas,  electricity, 
milk,  bread,  telephone  service,  street  railway  trans- 
portation, taxi-cab  service?     Give  reasons  for  con- 
clusion in  each  case.     If  the  decision  is  in  favor  of 
monopoly,  specify  the  form  of  public  control  that 
should  prevail — public  ownership  or  regulation. 

367.  "The  franchises  granted  by  these  cities  are 
the  best  possible  for  the  gas  companies." — A  dealer 
in  gas  company  bonds. 

a.  Name  some  of  the  probable  stipulations  in  these 
franchises.     Suggest  some  probable  omissions. 

b.  How  should  you  wish  the  franchises  changed 
if  you  were  a  citizen  of  one  of  these  cities?     If  you 
were  a  citizen,  but  at  the  same  time  a  subscriber  to 
the  stock  of  the  gas  corporation? 

368.  Should  the  policy  of  the  United  States  gov- 
ernment be  to   destroy   monopolies   or   to    regulate 
them?    Discuss  the  issues  involved. 


XXIV. 
THE  RAILROAD  PROBLEM. 

369.  A  certain  American  railroad  is  said  to  haul 
freight  at  an  average  cost  of  one  mill  per  ton-mile. 

a.  What  is  a  ton-mile? 

b.  How  is  the  railroad  able  to  carry  freight  at 
such  a  low  cost? 

c.  What  would  be  the  cost  at  this  rate  of  shipping 
a  ton  of  shoes  one  thousand  miles?     About  what 
would  be  the  cost  for  each  pair  of  shoes? 

d.  What  is  the  social  significance  of  this  low  cost 
of  transportation? 

370.  Enumerate  the  principal  costs  which  a  rail- 
road has  to  meet.     How  are  these  various  items  of 
cost  affected  by,  say,  a  ten  per  cent  increase  in  traf- 
fic?    How  would  dividends  be  affected  by  such  an 
increase  in  traffic  if  rates  remained  as  before?     Is  it 
possible  that  dividends  can  be  increased  by  charging 
a  special  low  rate  for  this  additional  traffic  ? 

371.  Try  to  estimate  the  added  cost  involved  in 
carrying  (a)  a  ten-pound  box  from  Minneapolis  to 
Chicago;  (b)  an  additional  box-car  empty;  (c)  an 
additional  box-car  loaded. — (C.) 


THE  RAIROAD  PROBLEM  115 

372.  If  empty  cars  are  being  brought  to  Minneap- 
olis to  be  filled  with  flour,  at  what  rates  may  the 
railroads  profitably  offer  to  haul  freight  in  them  to 
Minneapolis?     May  there  be  social  disadvantages  in 
allowing  the  railroads  to  carry  freight  at  these  low 
rates  ?     Explain. — (  C. ) 

373.  Show  that  if  a  railroad  runs  from  A  to  C 
through  B,  it  might  be  to  the  interest  of  the  shippers 
at  B,  if  the  railroad  were  allowed  to  carry  freight 
from  A  to  C  at  a  less  rate  per  ton  than  is  charged 
for  carrying  freight  from  B  to  C.     Give  a  practical 
illustration  of  this  problem  by  substituting  the  names 
of  cities  in  the  United  States  for  the  letters. 

374.  Should  freight  rates  be  based  on  the  cost  of 
rendering  service  or  on  "what  the  traffic  will  bear"? 
At  least  what  costs  must  be  covered  in  every  case? 
Illustrate.     How  should  the  relative  rates  for  hay 
and  brick  be  determined?     Discuss. 

375.  "It  is  an  elementary  law  of  trade  that  better 
prices  per  unit  should  be  made  for  large  quantities 
than  for  a  small  quantity.     Then  why  should  you 
object  if  railroads  make  special  rates  for  large  ship- 
ments?"   Discuss. 

376.  "The  law  does  not  attempt  to  prohibit  a 
merchant  from  selling  to  different  individuals  at  dif- 
ferent prices  or  even  from  giving  away  his  wares. 


116  THE  RAILROAD  PROBLEM 

Then  why  should  the  railroads  be  so  hedged  about 
by  legal  prohibitions  upon  the  prices  to  be  charged?" 
Discuss. 

377.  "The  Standard  Oil  Company  entered  into  a 
contract  with  a  railroad  under  which  the  railroad 
was  to  charge  it  only  ten  cents  per  barrel  for  trans- 
porting its  oil  while  charging  other  companies  thirty- 
five  cents  for  the  same  service,  and  was  to  pay  to 
it  twenty-five  cents  of  the  excessive  charge  imposed 
upon  its  competitors." — SEAGER,  p.  439. 

a.  Estimate  the  advantage  that  this  gave  to  the 
Standard  Oil  Company. 

b.  Why  should  the  railroad  have  wished  to  enter 
into  such  a  contract? 

c.  Were  the  directors  of  this  company  guilty  of 
moral  turpitude  in  making  such  a  contract?     Were 
the  officers  of  the  railroad? 

378.  "The  fact  that  railway  service  is  subject  to 
decreasing  cost  has  made  public  regulation  of  rates 
more  imperative  than  it  would  otherwise  have  been." 
Explain. 

379.  Should  federal  regulations  extend  to  intra- 
state  business?     Argue  both  affirmatively  and  nega- 
tively. 

380.  "The  power  to  tax  railroads  and  the  power 


THE  RAILROAD  PROBLEM  117 

to  regulate  their  rates  should  be  lodged  in  the  same 
hands."  Give  supporting  argument.  Should  the 
power  to  adjust  wages  be  exercised  by  the  board  that 
fixes  rates?  Discuss. 

381.  List  the  principal  arguments  for  and  against 
federal  ownership  of  railroads. 


XXV. 

THE  LABOR  PROBLEM. 

382.  "The  labor  problem  has  arisen  because  the 
machine  has  been  substituted  for  the  tool."    Do  you 
agree?    Discuss. 

383.  Compare  the  ability  of  a  wage-earner  to  get 
the  maximum  wage  that  competition  will  permit,  with 
the  ability  of  a  dealer  in  raw  material  to  get  the 
maximum  price  that   competition  will  permit.      In 
how  many  respects  do  they  differ? 

384.  "It  is  generally  considered  bad  form  for  an 
employer  to  entice  an  employee  away  from  a  fellow 
employer  by  offering  an  increase  in  wages."     Is  this 
true?     If  it  is,  how  do  you  account  for  it?     Does  it 
at  all  explain  trade  unionism? 

385.  "If  we  had  perfectly  free  competition  among 
employers   and  perfect  mobility   among  employees, 
labor  unions  would  be  of  no   avail  in  determining 
wages,   save   as   they   limited   the  number   of   wage 
workers  in  particular  employments."    Argue  in  sup- 
port of  this  statement. 

118 


THE  LABOR  PROBLEM  119 

386.  Certain  persons  see  in  trade  unionism  an  at- 
tempt on  the  part  of  the  wage-workers  to  control,  in 
part,  their  industrial  life,  just  for  the  sake  of  con- 
trol.   Do  you  see  any  reason  for  this  view?    Is  there 
any  similarity  between  a  desire  for  membership  in  a 
trade  union  and  the  desire  for  a  share  in  the  control 
of  political  affairs?    Discuss. 

387.  "College  professors  are  demanding,  more  and 
more,  a  share  in  the  administrative  control  of  our 
colleges  and  universities."    If  this  is  true,  does  it  help 
us  to  understand  trade  unionism  ? 

388.  What  should  you  expect  would  be  the  effect 
of  the  following  upon  trade  unionism :    An  extension 
of   educational    opportunities?      Prohibition?      The 
exclusion   of  immigrants?      The  elimination   of  the 
mentally  "unfit"? 

389.  Is  this  any  reason  why  employers  should 
prefer  to  use  the  term  open  shop  rather  than  the 
term  non-union  shop? 

390.  "Employers  and  employees  often  forget  that 
they  have  duties  to  society." 

a.  Give  several  illustrations  of  this  point. 

b.  Have  street  car  operators  a  right  to  strike  and 
prevent  the  cars  from  being  run?    Explain  fully. 

c.  Is  this   aspect   of  industry,  social  dependence 


120  THE  LABOR  PROBLEM 

upon    particular    industries,    becoming    more    pro- 
nounced?   Explain  and  illustrate. 

391.  "It  is  manifestly  unfair  for  a  labor  unionist 
to  refuse  to  work  at  a  given  wage  and  at  the  same 
time  to  deny  to  his  unemployed  brother  the  right  to 
work  at  this  wage."    Discuss  the  issue  involved. 

392.  Samuel  Gompers,  president  of  the  American 
Federation  of  Labor,  in  testifying  before  the  Senate 
committee  that  was  investigating  the  steel  strike  in 
1919  referred  to  the  welfare  work  of  the  United 
States  Steel  Corporation  as  "hell-fare  work."     Ac- 
count for  his  attitude. 

393.  "So  long  as  there  is  only  a  limited  amount 
of  economic  income  and  limited  opportunity  for  con- 
trol there  will  be  a  conflict  over  the  division  of  the 
same."     Do  you  agree?     Discuss. 


XXVI. 

GOVERNMENT  EXPENDITURE  AND 
GOVERNMENT  REVENUE. 

A.  INTRODUCTION. 

394.  What  is  the  question  that  must  be  answered, 
in  determining  whether  or  not  there  has  been  a  real 
increase  in  the  burden  of  public  expenditure? 

395.  "The  paying  of  taxes  involves  no  hardship, 
for  what  the  government  takes  from  the  taxpayer  it 
immediately  returns  to  him  for  goods  and  services." 
Criticise.     Discuss  the  truth  of  the  statement  if  the 
"for"  near  the  end  of  the  sentence  were  changed  to 


396.  "Expenditures  for  military  purposes  are  jus- 
tifiable,   as   they   furnish   employment   to   men   who 
might  otherwise  starve."     Examine. 

397.  What  connection  is  there  between  the  follow- 
ing factors  and  the  amount  of  government  expendi- 
tures:    The  spirit  of  nationalism,  democracy,  skill 
in  the  mechanical  arts,  city  life?    Illustrate. 

121 


122         EXPENDITURE  AND  REVENUE 

398.  "The  entire  question   (of  the  government's 
taking  over  certain  activities)  turns  upon  the  choice 
of  the  means  of  satisfying  certain  common  collective 
wants." — ADAMS,    The  Science   of  Finance,   p.    67. 
Justify  this  statement.     Mention  the  elements  that 
influence  choice  in  this  matter. 

B.  REVENUE. 

399.  "The  fee  system  is  bad  when  the  fees  are  re- 
tained as  salary  by  the  officer  collecting  them."    Dis- 
cuss. 

400.  What  should  determine  the  proportion  of  the 
cost  of  street  paving  that  should  be  paid  by  special 
assessment?     What  is  the  rule  in  your  city? 

401.  Adam  Smith's  four  canons  of  taxation  may 
be  characterized  as  follows :    Aibility,  certainty,  con- 
venience, and  economy.    Amplify  and  illustrate  each 
canon. 

402.  "No  tax  can  be  just  unless  it  leaves  individ- 
uals in  the  same  relative  condition  in  which  it  found 
them." — McCuuLocH,  Treatise  on  Taxation,  quoted 
from     BULLOCK'S     Selected     Readings     in     Public 
Finance,  p.  240.     Examine. 

403.  "Equity  in  the  apportionment  of  taxes  re- 
duces the  burden  for  the  support  of  the  state  to  its 


EXPENDITURE  AND  REVENUE          123 

minimum.3* — ADAMS,  The  Science  of  Finance,  p.  322. 
Explain. 

C.  SHIFTING  AND  INCIDENCE  OF  TAXES. 

404.  Shifting  of   taxes   is   a  price  phenomenon. 
The  shifting  of  a  tax  can  take  place  only  through  a 
withholding  of  supply. 

a.  Argue  in  support  of  the  second  statement.  Il- 
lustrate. 

&.  Can  a  tax  upon  houses  be  shifted  to  tenants? 
Can  a  tax  upon  land,  levied  according  to  land  value, 
be  shifted  to  tenants?  Explain. 

405.  Should  you  expect  a  tax  upon  excess  profits 
to  increase  the  price  of  goods?     Explain. 

406.  Suggest  a  plan  for  corporation  taxation  that 
would  not  allow  shifting;  one  for  the  taxing  of  mer- 
chants. 

407.  See  problems  in  section  VI  that  involve  shift- 
ing of  taxes. 

D.  THE  INDUSTRIAL  RESULTS  OF  TAXATION. 

408.  "A  heavy  tax  on  the  rich  might  have  the 
same  consequence  for  the  poor  as  would,  say,  a  mod- 


124          EXPENDITURE  AND  REVENUE 

erate  tax  on  wages.'5 — PIEKSON,  Principles  of  Eco- 
nomics, ii,  p.  387.    Argue  for  this  proposition. 

409.  "The  effect  of  placing  heavy  taxes  on  the 
very  rich  is  most  harmful  in  countries  which  own  few 
securities  (either  domestic  or  foreign),  or  in  coun- 
tries owning  securities  for  which  no  market  can  be 
found  abroad." — PIERSON,  Ibid.,  p.  389.     How  can 
this  be  true? 

410.  "Taxation  as  a  weapon  of  retaliation  often 
proves  to  be  a  boomerang." — SELIGMAN.     Give  sev- 
eral possible  illustrations. 

411.  "Every  tax  discourages  some  kind  of  pro- 
duction because  the  aim  of  taxation  is  to  divert  a 
portion  of  the  productive  force  of  the  community 
from  producing  what  individuals  desire  as  individuals 
to  producing  something  else  which  they  desire  in 
their   corporate   capacity." — CANNAN,   Equity   and 
Economy  in  Taxation,  Econ.  Jour.,  11 :476. 

a.  Illustrate  the  truth  of  the  quotation  by  assum- 
ing a  tax  to  be  placed  on  furniture;  on  cattle;  on 
the  income  of  teachers. 

6.  Is  this  what  is  usually  meant  by  saying  that  a 
tax  discourages  production?  Does  a  tax  on  land 
value  tend  to  discourage  production?  Distinguish 
between  a  decrease  in  total  production  and  a  change 
in  the  form  of  production. 


EXPENDITURE  AND  REVENUE          125 

412.  "We   (should  select)    in   the  imposition   of 
fresh  taxes  commodities  for  which  substitutes  cannot 
easily  be  found  and  with  which  consumers  will  not 
willingly  dispense,  in  order  that  the  incidental  loss 
to  producers  may  be  as  small  as  possible." — SIDG- 
WICK,  Principles  of  Political  Economy,  p.  573.    Ex- 
plain. 

E.  THE  GENERAL  PROPERTY  TAX. 

413.  Is  all  property  equally  able  to  bear  taxes? 
Explain. 

414.  Why  is  the  general  property  tax  particu- 
larly unsuited  to  the  taxation  of  business  and  pro- 
fessional men? 

415.  "Although   credits  may  be  included  within 
the  term  'property'  from  the  point  of  view  of  law, 
they  are  not  property  in  any  true  economic  sense." — 
PLEHN,   Introduction   to   Public   Finance,   p.    185. 
Defend  this  statement. 

416.  "Minnesota  taxes  money  and  credit  at  the 
rate  of  three  mills,  while  it  taxes  other  property  from 
six  to  eight  times  this  rate.     This  is  justifiable  both 
theoretically  and  practically.95    Explain. 

417.  "Strictly  enforced  the  general  property  tax 
must  inevitably  impose  a  burden  upon  forest  lands 


126          EXPENDITURE  AND  REVENUE 

which  in  certain  cases  might  easily  amount  to  one- 
half  or  even  three-fourths  of  the  total  income  when 
finally  received." — FAIRCHILD,  Proceedings  of  the 
National  Tax  Association,  1912,  p.  373.  Mention 
other  things  of  which  the  above  is  true.  Does  this 
constitute  an  argument  against  the  general  prop- 
erty tax?  Explain. 

F.  THE  INHERITANCE  TAX. 

418.  The  inheritance  tax  is  justified  on  several  dif- 
ferent  grounds.      Suggest   three   or  four  of   these. 
Which  is  the  best? 

419.  Is  a  national  inheritance  tax  preferable  to 
state  inheritance  taxes?     Discuss. 

420.  Examine  the  following  propositions  : 

a.  Rates    on   inheritances    should   vary  inversely 
with  nearness  of  kin. 

6.  Rates  should  vary  directly  with  nearness  of  kin. 

c.  Rates  should  not  vary  with  relationship. 

d.  Rates   should  not  vary  with  the  amount   in- 
herited. 

G.  THE  INCOME  TAX. 

421.  "The  only  possible  objection  to  relying  al- 
most exclusively  upon  an  income  tax  for  public  rev- 


EXPENDITURE  AND  REVENUE          127 

enue  is  that  it  is  difficult,  or  impossible,  to  administer 
it  properly." 

a.  Develop  an  argument  in  support  of  this  con- 
tention. 

6.  Is  the  difficulty  of  proper  administration  in- 
surmountable? Discuss. 

422.  Give  several  illustrations   to   show  what  is 
meant  by  "collection  at  the  source." 

423.  "We  rely  upon  'information  at  the  source' 
rather  than  'collection  at  the  source5  in  our  national 
income  taxation."     Explain. 

424.  Argue  that  income  from  personal  services 
should  be  taxed  at  a  lower  rate  than  income  from 
property. 

425.  Account  for  the  growing  demand  for  state 
income  taxes  in  this  country. 

426.  Is  there  any  objection  to  having  both  a  na- 
tional and  a  state  income  tax?    Would  that  amount 
to  double  taxation? 

H«  [THE  TAXATION  OP  CORPORATIONS. 

427.  Should  corporations  be  taxed  at  the  rates 
imposed  upon  other  property? 


128         EXPENDITURE  AND  REVENUE 

428.  "The  service  charges  of  public  utility  cor- 
porations should  be  pushed  down  to  a  no-tax  basis 
and  the  corporations  exempted  from  taxation."  Give 
arguments  for  and  against. 

429.  Should  not  Michigan  residents  holding  stock 
in  an  Ohio  corporation  be  free  from  taxation  upon 
the  stock  inasmuch  as  Ohio  taxes  the  corporation? 
Should  they  not  be  taxed  upon  it  that  they  may 
share  in  the  burden  of  their  state  government? 

430.  "Life  insurance  is  a  tax,  and  to  tax  it  is  to 
commit  the  economic  barbarism  of  taxing  a  tax." — 
An  insurance  journal. 

a.  What  does  the  author  mean  by  calling  life  in- 
surance a  tax?  Is  he  justified  in  so  characterizing 
it? 

6.  Show  that  the  tax  on  insurance  companies  is 
not  inequitable. 

431.  What  is  the  proper  basis  for  the  taxing  of 
corporations:  property,  gross  revenue,  or  net  rev- 
enue?    Explain. 

432.  How  shall  the  property  value  of  a  railroad 
be  apportioned,  for  purposes  of  taxation,  to  the  dif- 
ferent political   divisions   through  which  the  road 
runs? 

433.  "Taxes  levied  upon  the  revenue  of  corpora- 


EXPENDITURE  AND  REVENUE          129 

tions  usually  have  a  property  basis,  and  thus  revenue 
taxation  cannot  be  defended  on  the  ground  that  it 
avoids  the  difficulties  of  a  property  valuation." 
Examine. 

I.  SINGLE  LAND  TAX. 

434.  State  the  argument  for  a  single  land  tax; 
against  it. 

435.  "A  tax  on  goods  increases  their  price,  a  tax 
on  land  decreases  its  price.     The  aim  should  be  to 
make  all  things  low  in  price.     Therefore,  we  should 
tax  land  only."    Discuss. 

436.  "Rent  is  a  price  paid  for  the  management  of 
land  in  the  industrial  system.'5    Argue  in  support  of 
this  statement.    What  bearing  has  this  on  the  single 
tax  controversy? 

437.  Contrast  the  position  of  the  Physiocrats  in 
regard  to  a  single  land  tax  with  that  taken  by  Henry 
George. 

438.  Sismondi  asked,  in  answer  to  a  demand  for  a 
revision  of  the  land  tax,  "Do  you  wish  equality  be- 
tween men  or  between  lands  ?"     Show  that  this  ques- 
tion was  pertinent. 

439.  What  relation  is  there  between  the  tax  on  the 


130         EXPENDITURE  AND  REVENUE 

unearned  increment  of  land  and  the  single  land  tax? 

What  is  the  vital  difference  between  them? 

*> 

440.  "An  expected  increase  in  land  value  is  in- 
cluded in  the  purchase  price."    Explain.    Suggest  a 
plan  for  taxing  the  increase  in  land  value  that  will 
not  confiscate  present  value. 

441.  What  objection,  other  than  that  of  confiscat- 
ing from  present  owners,  is  there  to  taxing  away  all 
of  the  increase  in  land  value? 

442.  What  is  the  objection  to  modifying  the  gen- 
eral property  tax  in  the  one  particular  of  taxing 
away  the  benefits  resulting  from  the  privilege  of  land 
ownership? 


XXVII. 
PROJECTS  OF  ECONOMIC  REFORM. 

443.  "The  economist  reformer  necessarily  bases 
his  proposals   upon   some   concept   of   an   ideal   so- 
ciety." 

a.  Outline   briefly    the   main    features    that   you 
would  expect  in  an  ideal  society. 

b.  Are   any   economic   reforms   necessary    to   the 
realization  of,  or  to  the  approach  toward,  this  ideal? 
If  so,  what  are  they? 

444.  "Proposed  reforms  are  'mechanical'  or  'evo- 
lutionary.' '      Distinguish  between  these  two  classes 
of  proposals.     Illustrate  each. 

445.  "Pecuniary  gain,  not  social  utility,  guides 
individuals  in  their  industrial  conduct."     Show  that 
desire  for  pecuniary  gain  may  lead  to  the  best  service 
for  society ;  that  it  may  lead  to  harmful,  or  at  least 
not  to  the  best,   service.      Which   condition  is   the 
more  prevalent?  If  price  (desire  for  pecuniary  gain) 
does  not  regulate  industrial  conditions  in  the  interest 
of  society,  what  can  we  do  about  it?     Answer  ex- 
plicitly. 

131 


132      PROJECTS  OF  ECONOMIC  REFORM 

446.  "As   our   industrial   relations   become   more 
complex,  social  control  becomes  more  necessary." 

a.  Are  our  industrial  relations  becoming  more 
complex?  Explain  and  illustrate. 

6.  Give  illustrations  of  social  control  over  indus- 
try, or  industrial  conditions. 

c.  May  social  control  be  due  in  some  instances  not 
to  the  growing  complexity  of  industrial  relations  but 
to  the  growth  of  the  social  conscience — to  the  exten- 
sion of  the  spirit  of  brotherhood?  Illustrate. 

447.  "Medical  assistance  is  so  vital  to  the  health 
and  life  of  the  people  that  it  will  sooner  or  later  be 
socialized."    What  is  meant  by  this  statement?    How 
could  medical  assistance  be  socialized?     What  would 
be  the  advantage  gained?    Would  there  be  any  dis- 
advantage?   Would  this  be  an  "economic  reform"? 

448.  "Canal  dues   and  highway  tolls  have  been 
abolished,    but    railway    freights     (on    government 
owned  roads)  never:  why  the  one  and  not  the  other?" 
— PIEESON,  Principles  of  Economics.     Answer. 

449.  Should  the  state  furnish  university  instruc- 
tion without  expense  to  the  student?     If  the  state 
gives  instruction  without  expense,  why  should  it  not 
also  support  the  student  during  the  years  of  study? 

450.  Suppose  that  X.  and  Y.  are  twins,  and  of 
equal  native  capacity.     Suppose  that  their  parents 


PROJECTS  OF  ECONOMIC  REFORM      183 

die  when  they  are  young,  and  that  X.  is  then  brought 
up  and  educated  by  a  rich  uncle,  while  Y.  is  brought 
up  but  not  given  much  education  by  a  poor  aunt. 
X.  makes  an  income  of  $10,000  per  year;  Y.  makes 
one  of  $500.  Is  this  right?— P. 

451.  "The  practices  of  scientific  advertising  and 
of  suggestive  selling  have  very  little  proved  utility 
and  are  nearly  as  likely  to  be  applied  to  force  the 
wrong  articles  on  the  wrong  purchasers  as  to  dis- 
tribute wealth  along  the  lines  of  its  maximum  utility 
for  consumption." — HOBSON,  Work  and  Wealth,  p. 
218.    Evaluate  this  statement.    Accepting  it  as  true, 
what  should  be  our  attitude  toward  the  practices 
mentioned  ? 

452.  "If  there  are  trades  incapable  of  bearing  the 
true  costs  of  maintenance  of  the  labor  they  employ 
(in  wages  and  insurance),  it  would  still  be  right  to 
place  on  them  the  obligaiton  to  do  so,  for  their  de- 
struction will  be  a  gain,  not  a  loss,  to  a  society  that 
understands  its  human  interests." — HOBSON,  Ibid., 
p.  230. 

a.  Suggest  the  various  kinds   of  insurance  that 
might  be  included  here. 

b.  Give  argument  in  support  of  this  contention. 

c.  Argue  in  opposition  to  this  contention.     Show 
that  industry  as  a  whole  might  be  in  such  a  condi- 
tion that  these  costs  could  not  be  borne.     Should  a 


134      PROJECTS  OF  ECONOMIC  REFORM 

person  be  prohibited  from  working,  if  he  cannot  earn 
the  total  costs  of  his  maintenance? 

453.  "Equality  in  income  would  result  in  a  great 
waste  in  the  social  utility  derived  from  consumption." 
— HOBSON.    Defend  this  statement. 

454.  In  the  preface  to  Munera  Pulveris,  Ruskin 
criticises  the  teachers  of  economics,  and  by  inference 
the  industrial  order,  because  those  things  which  are 
"illth"  may  be  rated  above  those  things  which  are 
"wealth." 

a.  Give  a  few  illustrations  to  show  that  we  often 
make  the  mistake  to  which  Ruskin  objects. 

b.  Accepting  this  to  be  a  regrettable  condition, 
what  can  we  do  about  it? 

c.  As  time  goes  on,  do  you  believe  that  market 
estimates  will  become  more,  or  less,  accurate  in  esti- 
mates of  "wealth"?     Explain. 

455.  "No  longer  do  men  see  it  wise  to  work  four- 
teen hours  per  day.   .    .    .   The  fact  that  there  are 
no  men  to  regret  these  shorter  hours  with  their  lim- 
itation of  product  amounts  to  a  direct  approval  of 
the  choice  of  leisure  as  against  product.     What  de- 
termines that  the  final  wise  limit  of  restriction  upon 
labor   and   product   has   already   been   reached  ?"- 
DAVENPORT,  The  Annalist,  Nov.  8,  1915. 

a.  Do  you  believe  that  the  average  working  day 
should  be  shortened  still  more? 


PROJECTS  OF  ECONOMIC  REFORM      135 

b.  Formulate  a  general  statement  as  to  when  it  is 
advisable  to  substitute  leisure  for  product. 

c.  In  this  same  article  Davenport  makes  a  similar 
point  in  regard  to  the  saving  of  capital.    Formulate 
a  proposition  and  a  question  in  line  with  this  posi- 
tion. 

456.  "How  far  is  it  true  that  the  pleasure  of  the 
wearer  of  pearls  can  be  regarded  as  offsetting  the 
pains  and  dangers  of  the  pearl  diver?     The  wearing 
of  hand-made  lace  as  offsetting  the  making  of  it? 
The  artificial  flowers,  the  labor  of  the  flower  girl?" 

—DAVENPORT,  Ibid. 

a.  State  definitely  the  point  that  Davenport  is 
making  here. 

6.  If  the  pleasure  to  the  user  does  not  offset  the 
pain  to  the  producer,  should  the  article  be  produced? 
Discuss  fully,  stating  some  ground,  at  least,  for  not 
taking  the  negative  view? 

c.  State  the  difference  between  the  point  in  this 
quotation  and  that  in  the  preceding  one. 

457.  "No  person   should  be   allowed  to  give  his 
heirs  more  than  $1,000,000." 

a.  Argue  that  large  fortunes  are  socially  unde- 
sirable. 

6.  What  may  be  the  danger  in  such  a  policy  of 
inheritance  taxation  as  is  suggested  here? 

c.  "If  the  large  fortunes  are  undesirable,  condi- 


136      PROJECTS  OF  ECONOMIC  REFORM 

tions  should  be  adjusted  so  that  they  cannot  be  ac- 
cumulated."   Do  you  agree? 

458.  "All  'unearned'  incomes  should  be  taxed  into 
the  treasury  of  the  state."     What  is  meant  by  un- 
earned income?     Is  there  an  element  of  this  kind  in 
the  landlord's  income?     In  the  return  to  a  stock 
speculator?    In  a  lawyer's  income?    In  a  professor's 
salary?    In  a  laborer's  wages? 

459.  "It  is  inevitable  that  certain  persons  should 
ride  and  that  others  should  walk,  but  we  should  make 
the  walking  as  good  as  possible." 

a.  Is  inequality  of  income  inevitable?    Explain. 

b.  Name    several    social    and    economic    improve- 
ments that  are  suggested  by  the  second  clause. 


DIRECTIONS  TO  THE  STUDENT. 

I.  Attacking  the  Problems. 

1.  Read  the  assigned  problems  carefully. 

2.  Study  the  text  or  other  assigned  reading,  keep- 
ing the  problems  in  mind. 

3.  Make  sure  that  you  understand  the  terms  used 
in  the  problems. 

4.  Determine  the  particular  point  at  issue. 

5.  Bring  to  bear  upon  the  problem  all  the  knowl- 
edge you  possess  that  relates  to  it,  whether  gained 
from  the  text,  lectures,  class-room  discussion,  or  per- 
sonal experience.     Consult  your  notes. 

6.  State  your  answer  definitely  and  adequately. 
Yes  and  no  answers  are  never  permissible;  explain, 
discuss,  but  do  not  say  more  than  is  necessary;  be 
succinct.     Where  possible,  state  the  economic  prin- 
ciple involved  and  give  illustrations,  preferably  orig- 
inal ones. 

II.  Preparing  and  Correcting  the  Written  Exer- 
cises. 

The  following  directions,  which  appeared  in  the 
original  local  edition  of  this  book,  are  included  here 

137 


138         DIRECTIONS  TO  THE  STUDENT 

for  the  convenience  of  such  teachers  as  may  care  to 
use  them. 

Students  will  prepare  the  solutions  to  the  prob- 
lems, which  are  assigned  to  be  written,  upon  "eco- 
nomics paper."*  The  student's  seat  number  and 
his  name  shall  be  placed  on  the  first  and  second  lines 
in  the  center  of  the  first  page,  the  instructor's  name 
and  the  number  of  the  recitation  section  on  the  third 
and  fourth  lines  at  the  left  of  the  page,  and  the 
exercise  number  and  the  assignment  on  the  third  and 
fourth  lines  at  the  right  of  the  page.  For  example: 

156 
A.  B.  Smith 

Mr.  Ex.7 

Sec.  5.  70,  71,  73,  75-77 

The  following  scheme  of  marking  will  be  used: 
\/  signifying  excellent ;  no  mark,  good ;  wave  line, 
something  wrong ;  p,  missed  the  point ;  i,  incomplete ; 
v,  vague ;  a,  inadequate ;  q,  see  the  question ;  x, 
wrong.  A  check  (>/)  placed  at  the  top  of  the  first 
page  will  indicate  that  the  paper  as  a  whole  is  excel- 
lent or  very  good;  a  cross  (X)  will  indicate  that  it 
is  below  grade.  The  papers  will  be  marked  and  re- 
turned to  the  student  to  be  corrected,  in  red  ink, 
and  returned  to  the  instructor.  Papers  which  do 
not  need  corrections  shall  also  be  returned  to  the 
instructor  for  filing.  The  student  will  label  all  of 
the  returned  papers  corrected. 

*  This  paper  consists  of  two  sheets  about  9%  inches  by  12 
inches  stapled  together  and  folded  into  four  pages. 


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